Despite Narrowed Losses, Freddie Needs $6.1 Billion

Mortgage giant Freddie Mac (FRE) posted a $9.9bn net loss — or $3.14 per share — in Q109, from the $23.9bn net loss in Q408. The company’s refinance-loan purchase volume quadrupled since the previous quarter, but poor performance of securitized loans drove Freddie into a net worth deficit. During the quarter, Freddie purchased or guaranteed $148bn in mortgage loans and mortgage-related securities. With 30-year fixed mortgage rates near historic lows, Freddie’s single-family refinancing-loan purchase volume during Q109 increased to approximately $95bn, nearly four times the refinancing volume the company experienced during Q408. Freddie saw its real estate-owned operations expenditure rise to $306m in the quarter from $291m in the fourth quarter. Higher REO disposition volumes drove the increase, officials said in the earnings statement today. Credit-related expenses of $9.1bn and $7.1bn of securities impairments on deteriorating collateral performance drove the company’s massive losses. Partly offsetting the losses were net mark-to-market gains of $3.8bn on Freddie’s derivative portfolio, guarantee asset and trading securities. The losses tipped Freddie into a $6bn net worth deficit between the company’s assets and liabilities as of March-end. The Federal Housing Finance Agency (FHFA) acting as conservator requested $6.1bn in funding from the Treasury Department through its funding commitment. The Treasury’s commitment, part of the purchase agreement entered with FHFA, was amended as of May 6 to $200bn from $100bn. After the $6.1bn draw, Freddie said $149.3bn remains in Treasury’s commitment. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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