Freddie Posts $768m Profit After Accounting Gains

Mortgage giant Freddie Mac (FRE) late Friday reported a net income of $768m for Q209, compared with a $9.9bn net loss in the previous quarter. The return to green kept the government-sponsored enterprise from having to draw down more Treasury Department funds through its preferred stock purchase agreement. “We are pleased that our financial results allowed us to finish the quarter with a positive net worth, meaning we will not need to request any additional financial support from the government at this time,” said interim CEO John Koskinen. “However, we recognize that our financial results for the quarter include one-time accounting adjustments and mark-to-market gains that are subject to change in future periods.” During the quarter, the company recognized gains of $4.2bn on its derivative portfolio and guarantee asset, compared with gains of $25m recorded in Q109, primarily driven by net mark-to-market gains due to increases in long-term interest rates. Freddie’s net worth at the end of the quarter was $8.2bn. Its provision for credit losses was $5.2bn for Q209, compared with $8.8bn for Q109. The decrease was driven by a reduced rate of growth in the company’s loan loss reserve due to the recent modest national home price improvements, which the company believes to be largely seasonal. “While we are seeing some early signs pointing to a housing recovery — including a modest uptick in house prices in some markets — our outlook remains cautious due to rising foreclosures, growing unemployment, tight lending standards and buyers’ reluctance to re-enter the market,” Koskinen added. While the origination side of the business may remain constricted by credit concerns, servicing and loss mitigation efforts continue at Freddie and among its servicers. Freddie noted its servicers reported data that showed 16,000 loans entered the three-month Home Affordable Modification trial period in Q209. Freddie also bought $135bn worth of refinance loans in the quarter, compared with $95bn in Q109. Write to Diana Golobay. Disclaimer: The author held no relevant investments when this story was published.

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