Freddie Mac finally released its fourth quarter 2008 results after market close Wednesday, and the results weren't exactly pretty: a quarterly net loss of $23.9 billion, or $7.37 per share, compared to a net loss of $25.3 billion, or $19.44 per diluted common share, in the third quarter of 2008. The Q4 loss pushed Freddie to a full year loss of 50.1 billion, or $34.60 per share.
"We absorbed heavy financial losses last year, driven primarily by mark-to-market items and credit-related expenses. But we also provided vital liquidity to the strapped housing market--injecting more than $460 billion in mortgage funding in 2008," said Freddie CEO David Moffett in a press statement
Freddie said its regulator has asked Treasury for another $30.8 billion in government funds to help keep it afloat. The additional government funding comes with additional preferred stock -- the dividend payments on which will equal roughly $4.6 billion, enough to bury any future profits for some time to come. In its filing with the Securities and Exchange Commission
, the GSE warned that the size of the annual dividend "exceeds our annual historical earnings in most periods, and will contribute to increasingly negative cash flows in future periods."
In late January, Freddie had warned that it expected to request $30 billion to $35 billion in additional funding from the Treasury; but at that time, I don't know that anyone did the admittedly basic math on what the annual dividends would mean for future cash flow.
Parsing Q4's results
Freddie's Q4 loss was driven by $13.3 billion of mark-to-market losses, $7.2 billion in credit-related expenses, and other-than-temporary-impairment charges of $7.5 billion tied to the GSE's non-agency MBS portfolio. Of the GSE's credit expenses, $7.0 billion came in the form of provision for credit losses; net charge-offs actually fell slightly quarter-over-quarter to $863 million from $942 million one quarter earlier. But it's important to keep in mind that much of the slowing in charge-off activity is the direct result of policies the GSE has put into place to freeze foreclosures and evictions since December of last year.
Non-performing assets reached 2.59 percent of the single-family portfolio during Q4, Freddie said -- that's up from 1.91 percent just one quarter earlier, and 1.01 percent one year ago.
Of the nearly $50 billion in single-family NPAs, $38.1 billion came in the form of 90+ day delinquencies, while troubled debt restructurings remained essentially flat quarter-over-quarter. This suggests that troubled borrowers are backing up in the 90+ day bucket, and could be a sign of a future surge in foreclosures and REO volume once the GSE (and its regulator) allows a foreclosure and eviction activity to resume.
Nonetheless, the GSE saw the number of loan modifications recorded by its servicers move from 8,456 during Q3 to 17,695 during Q4. The GSE does not report recidivism rates, or the number of loans previously modified that became delinquent again at a later point.
Paul Jackson at email@example.com
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.