- Multifamily delinquency rates rose in Q3 for both Freddie Mac and Fannie Mae, although Freddie’s numbers were more moderate.
- Fannie Mae’s net income was $4B for Q3, slightly down from Q2, and the provision for credit losses due to ARM loans rose significantly.
- Freddie Mac’s Q3 net income rose to $3.1B, a YoY increase due to reduced non-interest expenses and benefits for credit losses.
During Q3, both Freddie Mac (FMCC) and Fannie Mae (FNMA) reported higher multifamily delinquency rates, reflecting the impact of broader economic headwinds affecting the broader real estate market.
By The Numbers
As reported by GlobeSt, Freddie Mac’s delinquency rate rose to 0.39% in both July and September, with a brief dip to 0.38% in August. The agency attributed these numbers to a higher incidence of delinquent floating-rate loans, particularly among small-balance loans.
Fannie Mae’s delinquency rates rose a bit more, from 0.49% in July to 0.52% in September. The rise was primarily driven by adjustable-rate mortgages (ARMs) that faced write-downs, with property value forecasts contributing to an uncertain financial outlook.
Behind The Trends
Freddie Mac emphasized that the higher rates were linked to a segment of loans entering their floating-rate phase, putting pressure on borrowers already navigating a challenging landscape.
This environment has been worsened by fluctuating interest rates and persistent inflation, which continue to impact the stability of property investments and loan performance.
Fannie Mae’s financial disclosures highlighted a $424M provision for credit losses, significantly more than in Q2. The provision was spurred by write-downs in ARM loans and broader concerns about property valuations, reflecting the agency’s cautious stance amid ongoing investigations into potential lending fraud.
Better Than Expected
Despite the rise in delinquency rates, both agencies posted strong financial results:
- Fannie Mae reported a net income of $4B, maintaining its positive streak for the 27th consecutive quarter, although down by $440B from Q2. The agency’s net worth climbed to $90.5B, supported by liquidity that enabled 383K households to buy, refi, or rent homes. However, credit provisions have been more robust to counterbalance potential value declines.
- Freddie Mac posted a net income of $3.1B, driven by lower non-interest expenses and a credit loss benefit, signaling resilience. The agency financed 131K rental units, with 94% designated as affordable for low- to moderate-income families.
Freddie Mac also reported net multifamily revenues of $0.8B, with a substantial YoY 47% net income growth, highlighting strong performance in its rental financing segment. James Whitlinger, Freddie Mac’s interim CFO, also cited a pickup in demand for multifamily mortgage financing.
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Future Outlook
Both Freddie Mac and Fannie Mae acknowledged ongoing challenges, especially in addressing housing affordability and economic uncertainties that could impact future property values. Fannie Mae, in particular, took steps to prepare for prolonged recovery periods, indicating a more cautious approach.
Freddie Mac’s focus on affordable housing units continues to align with its mission. New business volume for multifamily activity reached $15B for Q3, up from $35B YTD and compared to $32B in the same period last year.
What’s Next
Looking ahead, Freddie Mac and Fannie Mae are positioned to continue supporting the multifamily sector, albeit with prudent measures to manage credit risks and delinquency trends.
As economic conditions evolve, their roles in providing liquidity and maintaining stability in the housing market will be critical. Expect further updates as the market reacts to shifts in interest rates and regulatory oversight.
