Bloomberg News

Freddie Mac Has Wider Loss, Seeks $6 Billion From Treasury

November 04, 2011

(Updates with CEO comment, starting in second paragraph.)

Nov. 3 (Bloomberg) -- Freddie Mac, one of two mortgage- finance companies under U.S. conservatorship, reported a $4.4 billion loss for the third quarter and said it will seek $6 billion from the U.S. Treasury Department.

The company, confronted with a weak housing market and losses on derivatives, will draw on its Treasury cash lifeline to eliminate a net-worth deficit of $6 billion for the three- month period ending Sept. 30, according to a Securities and Exchange Commission filing today.

Today’s request brings Freddie Mac’s total Treasury draw to $72.2 billion. The company has returned $14.9 billion of that money to taxpayers in the form of dividend payments to the government. Freddie Mac’s $1.6 billion dividend payment in the third quarter contributed to its net-worth deficit, the company reported.

“Our financial performance in the third quarter was impacted by the weak housing market, as well as challenging financial market conditions,” Chief Executive Officer Charles E. Haldeman said in a written statement.

The McLean, Virginia, company posted a $646 million first- quarter profit in May, then swung to a $1.1 billion loss in the second quarter. A year ago, the company reported a $4.1 billion, third-quarter loss.

In today’s filing Freddie Mac reported $4.8 billion in derivative losses due to declining interest rates.

“Long-term interest rates declined by approximately 125 basis points in the third quarter, compared to a decrease of about 30 basis points in the second quarter,” the company reported.

Mortgage Insurance

A $3.6 billion provision for credit losses from failing single-family home loans was driven in part by “lower expectations for mortgage-insurance recoveries, which resulted from deterioration in the financial condition of certain of the company’s mortgage insurers,” Freddie Mac reported.

The housing crash has pressured mortgage insurers, which pay lenders when homeowners default and foreclosures fail to recoup costs. Freddie Mac and Fannie Mae require lenders to take mortgage insurance on loans whose downpayment is less than 20 percent.

Last month, Arizona insurance regulators seized PMI Group Inc., a leading mortgage insurer, and announced that the company would pay out 50 percent on claims.

Freddie Mac and larger rival Fannie Mae have survived on Treasury aid since September 2008, when they were seized by the federal government amid losses stemming from the collapse of the subprime mortgage market.

Since then, the companies have required U.S. aid to continue buying and guaranteeing home loans while policy makers work on an overhaul of the mortgage-finance system.

Dividends

Under a stock purchase agreement with the Treasury, the companies pay a 10 percent dividend in exchange for their taxpayer support. With today’s request from Freddie Mac, the companies have drawn about $175 billion since 2008 and returned about $30 billion in the form of dividends, for a total net cost to taxpayers of about $145 billion so far.

--Editors: Maura Reynolds, Lawrence Roberts

{PMI US <Equity>} {FMCC US <Equity>} {FNMA <Equity>}

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus