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Flooded with Housing Inventory, Freddie REO Sales Surge Despite Foreclosure Alternatives

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The number of Freddie Mac "foreclosure alternatives" completed in the first half of 2010 increased 123% from the same period in 2009, but for all its efforts, the government-sponsored enterprise (GSE) is still taking on record numbers of housing inventory. Year-over-year, Freddie's single-family portfolio increased 84.2% and the multifamily portfolio doubled. Monday morning's quarterly results reveal a 655% increase in forbearance agreements, where distressed homeowners simply get more time to begin paying back the mortgage. These forbearance agreements numbered 21,673 at the end of the first half of 2010, up from 2,869 at the end of the first half of 2009. In a sign that 2010 is the "year of the short sale" for the GSE, the number of short sales completed by Freddie Mac totaled 22,117, up nearly 180% from 7,914 in the first half of 2009. In addition, completed loan modifications increased 133% to 95,658 in H110 from 40,226 in H110. The only alternative to decrease was payment plans, which totaled 16,216 in H110, down 9.2% from H109. The foreclosure news comes as Freddie Mac reported a $4.7bn net loss in the second quarter of 2010, narrowed from a $6.7bn net Q110 loss. The Federal Housing Finance Agency (FHFA), acting as Freddie's conservator, will submit a request to draw down an additional $1.8bn through the senior preferred stock purchase agreement with the Treasury Department to cover a net worth deficit at the company. Freddie had a $1.7bn net worth deficit as of the end of the quarter, reflecting a total comprehensive loss of $400m and the dividend payment of $1.3bn to the Treasury on the senior preferred stock. The $400m loss attributable to Freddie reflects accumulated other comprehensive income (AOCI) of $4.3, which partially offset the $4.7bn net loss. Freddie also reported the value of its REO portfolio increased more than 84% year-over-year in Q210. At the end of Q210, the Freddie Mac REO portfolio was valued at nearly $6.3bn — $6.23bn in the single-family properties and $70m in multifamily properties. That's up 84.37% from a combined portfolio of $3.4bn at the end of Q209 — $3.4bn in single-family properties and $35m in multifamily. The year-over-year increases come at the same time as Freddie experienced double-digit increases quarter-over-quarter. The single-family portfolio increased 15% from $5.4bn in Q110 and the multifamily portfolio increased nearly 23% from $57m during the same time, for a total portfolio increase of 15.17% from $5.47bn since March 31. The total number of REO properties at the end of H110 was 62,190, up 79% from 34,706 at H109. Freddie disposed of 26,316 in Q210, up 60% from 16,443 REO properties in Q209. For the first half of 2010, REO dispositions totaled 48,285, up nearly 58% from 30,627 dispositions through H109. But Freddie's REO operations reported income in Q210, reversing the downward trend of operations expense in previous quarters. Freddie reported REO operations income of $40m in Q210, compared to an expense of $159m in Q110. For the first half of 2010, Freddie's REO operations were an $119m expense, down more than 62% from the first half of 2009's expense of $315m. Full-year REO expense in 2009 was $307m. Freddie said the improvement to its REO operations show properties are being sold above previous estimates. Non-performing mortgages are also on the rise. Freddie said the value of its non-performing loan portfolio was $112.4bn at the end of the first half of 2010, up 1.6% from Q110's value of $110.64bn and up 56% from $72.17bn at the end of the first half of 2009. The single-family delinquency rate was 3.96% down from 4.13% in Q110, the result of a slowdown in new delinquencies and higher volume of loan modifications and completed foreclosures. The multifamily delinquency rate was 0.28%, up from 0.25% in Q110, "reflecting continued weaker fundamentals, such as vacancy rates and effective rents, in certain markets, particularly in the Southeast and West regions." The aforementioned increases in short sales and other foreclosure alternatives increased total net charge-offs to $3.9bn, up from $2.8bn in Q110 and $1.9bn in Q209. Last week, Fannie Mae reported its Q210 financial results — a net loss of $1.2bn in Q210, and more than doubling of REO single-family REO inventory. Write to Austin Kilgore.

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