Magazine article American Banker

Q&A: Freddie Mac's Chief Foresees Dip in Loans, Rising Credit Quality

Magazine article American Banker

Q&A: Freddie Mac's Chief Foresees Dip in Loans, Rising Credit Quality

Article excerpt

A record 1998 for the U.S. mortgage industry-$1.45 trillion of originations-meant a banner year in volume and profits for Freddie Mac and its rival, Fannie Mae.

At the recent Midwinter 99 housing finance conference in Park City, Utah, American Banker talked to Leland Brendsel, chairman of Freddie Mac, about what lies ahead.

Investors demand ever bigger and better results from Freddie Mac. What will you do this year to top last year?

BRENDSEL: We think 1999 will be a good-in fact, an excellent-year. Activity will be down from 1998. It's unlikely we'll see $1.4 trillion in 1999. But even if it's just $1 trillion, that's still a big year.

We expect a large volume of fixed-rate loans to be sold into the secondary market. With the economy growing, inflation low, and home prices rising, it bodes well for credit performance.

On a single day last October, Freddie Mac bought $4 billion of mortgages in the secondary market. Do you see that happening again this year?

BRENDSEL: You can never predict that kind of thing. What we're finding is, financial markets can get imbalanced; there can be volatility. Those kinds of days create opportunities. We provided stability to the market. Could the same situation occur again? Absolutely.

What drives Freddie's earnings?

BRENDSEL: They are driven by discipline in how we manage interest rate and credit risk and how we manage our share capitalization. We should produce growth this year in the area of the mid-teens or somewhat above. Our results are there regardless of long-term rates, and whether the economy is weak or strong.

Our loan portfolio contributes 50% of growth in income. For 1999, the portfolio will provide an increasing share of net interest income. Our retained portfolio has been an important source of earnings growth. We had net growth of about $40 billion last year and should have 15% or 16% growth this year. …

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