Freddie Mac to Ask Treasury for Another $1.8 Billion

Freddie Mac has announced that it will be requesting an additional $1.8 billion cash infusion from the Treasury Department based on the results of its Second Quarter 2010 financial statement released on Tuesday.  The government sponsored enterprise (GSE) reported a net loss attributable to common stockholders of $6.0 billion, or $1.85 per diluted common share compared to a net loss attributable to common stockholders of $8.0 billion, or $2.45 per diluted common share, for the first quarter of 2010.  The total reflected a $1.3 billion stock dividend payable to the U.S Treasury under the terms of its Senor Preferred Stock Purchase Agreement.  The net loss attributable to Freddie Mac of $4.7 billion for the quarter compared to $6.7 billion in Quarter One.

The company said that the net loss during the quarter was negatively impacted by an out-of-period accounting adjustment with the cumulative effect of $1.2 billion net of taxes.  This was the result of identifying a backlog related to the processing of "certain foreclosure alternatives reported to the company by its servicers, principally loan modifications and short sales."  This resulted in erroneous loan data within loan reporting systems and significantly affected its financial accounting and reporting systems.  

Freddie Mac had interest income of $27.9 billion compared to $28.6 in the first quarter and net interest income of $4.1 billion, virtually unchanged from the previous quarter.  $5.0 billion of the net interest income was set aside as a provision for credit loss.  Non-interest income of ($3.6) billion was a substantial improvement over the ($4.9) billion in the period ended March 31 and included a derivative losses of $3.8 billion compared to $4.7 billion in the prior period.

Non-interest expenses were $479 million compared to $667 million the previous quarter and $1.21 billion for the second quarter of 2009.  The current quarter tally included 387 million in administration expenses and $40 million in expenses related to owned real estate.

During the quarter the company charged off $3.92 billion in debt or 0.80 percent of the total mortgage portfolio.  This was a substantial increase over the $2.77 billion or 0.56 percent charged off in Quarter One.  There are currently $118.7 billion in non-performing assets in the portfolio compared to 116.1 billion last quarter.  Non-performing assets represented 5.9 percent of the portfolio in the second quarter and 5.8 percent in the first.  The single family delinquency rate however dropped from 4.13 percent to 3.96 percent.

The company's announcement that it was requesting a $1.8 billion draw from the Treasury comes days after Fannie Mae announced it would make a similar request for $1.5 billion. This draw will bring the company's total indebtedness to the government to $64.1 billion.

The unpaid principal balance of the company's mortgage-related investments portfolio was $739.5 billion at June 30, 2010, down from $753.3 billion at March 31, 2010, due to ongoing liquidations of the company's existing holdings outpacing purchases during the period as a result of a lack of favorable investment opportunities. The majority of the company's purchases consisted of purchases of delinquent loans from PC trusts.

The balance of the company's single-family credit guarantee portfolio was $1.87 trillion at June 30, 2010, down from $1.88 trillion at March 31, 2010, primarily due to liquidations exceeding new business activity in the second quarter.

During the quarter just ended, Freddie Mac acquired 34,667 units of owned real estate and disposed of 26,316 units.  The current inventory stands at 62,190 units compared to 53,839 units at the end of the first quarter.

"Freddie Mac continues to support the still-fragile housing market by providing America's families with access to affordable home financing and foreclosure alternatives," said Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr. "We helped more than 150,000 struggling borrowers avoid foreclosure and provided funding that enabled more than 865,000 American families to buy or rent a home in the first half of 2010 - during which the GSEs again supplied the majority of all the liquidity to the U.S. mortgage market.

"At the same time, we are promoting sustainable homeownership by helping families buy homes that they can afford and keep for the long term," said Haldeman. "We recognize that high unemployment and other factors still pose very real challenges for the housing market, and with that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds as we support the nation's housing market."

As Fannie Mae did earlier in its second quarter report, Freddie Mac expressed confidence in the improving quality of its portfolio of loans originated since improved underwriting guidelines were put in place in 2009.  These loans have experienced significantly better delinquency trends this early in their lifecycle than loans originated in the 2005-2008 period.