Freddie Mac Faces Margin Pressure as Credit-Loss Reserves Expand

Key figures at a glance:
- Net income 2025: Just over $10 billion (lower than 2024)
- Net revenues: $23.3 billion (2024: $23.9 billion)
- Net interest income: Up 8%
- Provision for credit losses: $1.3 billion (2024: $476 million)
- Equity value (net worth): about $70.4 billion (as of 12/31/2025)

Higher risk reserves dampen earnings

Even as Freddie Mac achieved a third consecutive year with net income exceeding $10 billion, net revenues declined to $23.3 billion. The decline was most pronounced in the non-interest income category, which dropped by 55% to $1.9 billion, primarily due to net investment losses after the prior year had shown gains.

A major contributor to the softer bottom line was a substantial uptick in the reserves for credit losses. The allowance rose to $1.3 billion from $476 million in the previous year. In addition to reserves built for new production, the weaker loan performance on multifamily loans and changed projections for home-price trends weighed on the balance sheet. Will elevated risk in multifamily lending become a persistent drag? A large share of the reserves now sits in this area.

Interest income supports the top line

Should investors sell immediately? Or is it worth buying Freddie Mac?

On the other hand, Freddie Mac benefited from the rise in net interest income, which climbed 8% helped by a 2% growth in the mortgage portfolio and lower funding costs. The housing market in the United States remained resilient, with the average rate on 30-year fixed-rate mortgages easing to 6.09% this week from 6.87% a year earlier. A solid economy and a robust labor market continued to bolster demand for housing finance.

Capital constraints complicate the path to unwinding conservatorship

Despite the consistent, multi-billion-dollar profits, Freddie Mac?s long-term political status remains unresolved. Washington debate continues over the capital thresholds required for Freddie Mac and Fannie Mae to exit government conservatorship. Current estimates suggest the two agencies still face a combined capital shortfall in the vicinity of $200 billion to meet those targets.

Freddie Mac ended the year with an equity base around $70.4 billion, strengthening the balance sheet but keeping the company well short of a fully independent market position without a government backstop. The coming quarters will test whether the firm can contain rising credit risks tied to commercial real estate while political pressure for new capital raises the stakes for recapitalization.

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