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14 FREDDIE MAC REPORTS $7.8 BILLION NET INCOME Freddie Mac reported in mid-February its net income of $7.8 billion for the full year 2016, compared to net income of $6.4 billion for the full year 2015. e government-sponsored entity (GSE) also reported comprehensive income of $7.1 billion for the full year 2016, compared to comprehensive income of $5.8 billion for the full year 2015. e increase in the GSE's full year 2016 results was primarily driven by solid business results, as the company benefited from higher single-family guarantee fee income driven by amortization of upfront fees and two market- related items: ese are Net Interest Rate Effect, which produced $0.3 billion (after tax), and Spread Change Effect, producing $0.1 billion (after tax). Donald H. Layton, CEO of Freddie Mac, said, "2016 marked Freddie Mac's fifth consecutive year of profitability, reflecting not only an improving economy but also the very successful work we have done to transform the company." "Our single-family business continues to grow, and we were once again the nation's leading multifamily lender," he said. "We have the best overall credit quality in nearly a decade. Additionally, we are the leading innovator in credit risk transfer and the efficient reduction of legacy assets, enabling us to systematically reduce taxpayer exposure to mortgage risks." e GSE sold $3.1 billion of seriously delinquent loans and $1.1 billion of performing modified and reperforming single-family loans. Cumulatively sold were $7.7 billion in seasoned single-family mortgage loans since 2013. In addition, $8.1 billion of single-family nonagency mortgage-related securities were sold. Since 2013, Freddie has sold $36.1 billion in legacy assets. "Alongside these improvements, we are more effectively delivering on our community mission each year with new products and programs, which increase access to credit for more homebuyers and which fund affordable rental housing across the nation," Layton said. Comprehensive income was driven by solid business results, as the company benefited from higher guarantee fee revenues: $0.4 billion (after tax) estimated market-related gains, as quarterly volatility had minimal effect on full-year results. ere was a $0.1 billion (after tax) estimated gain due to market spreads tightening, with a $0.3 billion (after tax) estimated gain due to a modest increase in longer-term interest rates. Freddie Mac reported a comprehensive income of $3.9 billion driven by solid business results and $2.3 billion of market-related gains in Q 4, primarily driven by a significant increase in longer-term interest rates during the quarter. e company continues to manage its interest-rate risk to low levels on an economic basis, as evidenced by its duration gap, which WILL CONSTRUCTION ACTIVITY ENCOURAGE HOMEOWNERSHIP? Construction activity for the month of January shows an increase in building permits and housing completions, which is good news for new homebuyers. However, housing starts are having a difficult time picking up speed, according to residential construction data released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). Privately owned housing starts saw a 2.6-percent decline from December to January but were 10.5 percent above the January 2016 rate of 1.12 million. Starts on buildings with five or more units was at 446,000. Housing completions also showed a 5.6-percent decrease from December, with privately owned completions declining from 1.1 million to 1 million. Completions on buildings with five-plus units came in at 244,000. Despite declines in the aforementioned areas, building permit activity has seen a 4.6-percent jump for privately owned housing permits, rising from 1,228,000 million in December to 1,285,000. ere was also a .4-percent increase in permits for buildings with five or more units, with a jump from 1.182 million to 1.186 million. Single-family building permits were also up, rising 4.7 percent month over month. Ralph McLaughlin, Chief Economist for Trulia, said that the increase in permits is great for potential homebuyers who are in areas with sparse inventory. "e big uptick in permits should be good news for inventory-constrained homebuyers, as permits eventually become starts, which in turn become new homes for sale," he said. "As a result, we shouldn't be surprised to see a strong uptick in starts in mid-2017." A rise in single-family starts was detected, with a 1.9-percent increase since December 2016, bringing the number from 808,000 to 823,000. Marc Walco, PwC's U.S. Engineering & Construction Advisory Leader, says he believes that the data "represents a continued sign of strength and optimism in the housing sector." He continued, "As we begin the spring selling season, we have yet to see any material housing policy impacts from the Trump administration; however, builders remain hopeful that President Trump's pro-business approach could translate to a reduction in regulations on home builders and an easing of credit requirements for homebuyers. "Without any action, we expect affordability concerns to increase as the combination of a rising interest rate environment along with a continued gap in supply and demand of new entry-level housing forces some potential buyers to remain on the sideline. We are also watching how the immigration policy plays out, as it could impact an already-tight labor supply for builders." The first mortgage default rate as of January 2017. Source: S&P/Experian Consumer Credit Default Indices STAT INSIGHT 0.72%

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