Magazine article American Banker

Freddie Blames Drop on Donation to Its Foundation

Magazine article American Banker

Freddie Blames Drop on Donation to Its Foundation

Article excerpt

Freddie Mac's operating earnings in the fourth quarter dropped 1% from the same period a year earlier, to $846 million, or $1.14 per share.

Officials at the government-sponsored enterprise said the shortfall was caused primarily by a charge of $225 million, or 21 cents a share, for contributions it made to its charitable arm, the Freddie Mac Foundation.

Nonetheless, its net interest margin, a key measure of profits, dropped 12 basis points from a year earlier and 11 basis points from the third quarter, to 0.75%. Gisela Vallandigham, a Freddie spokeswoman, said that the drop was "driven by sharply higher prepayment volumes in light of the refinancing boom."

The operating earnings excluded gains on the derivatives that Freddie uses to hedge against interest rate risk. Including those gains, net income for the fourth quarter rose 25% from a year earlier, to $1.7 billion, or $2.38 a share, beating analysts' consensus estimate of $1.28.

Its full-year net income rose 39%, to $5.764 billion, largely because of record refinancing originations, which topped $2.5 trillion.

"The refi boom due to the lowest mortgage rates in over three decades was greatly responsible for the strong earnings," Ms. Vallandigham said.

Borrowers refinancing into lower-rate loans accounted for more than half of the year's originations, she said.

The fourth-quarter contribution to its foundation will free Freddie from making its usual annual donations for the next six to eight years, Ms. …

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