Freddie Will Ask For More U.S. Funds

Freddie Mac disclosed yesterday that it would ask for up to $35 billion in additional taxpayer dollars, eating up roughly half of the funds the government has pledged to keep the mortgage giant on firm financial footing.

The announcement was the latest sign that the takeover of Freddie Mac, and that of its sister company, Fannie Mae, were growing more costly than had been anticipated. Freddie Mac already has drawn on about $14 billion in taxpayer cash.

Also yesterday, District-based Fannie Mae, once a stalwart of the local business scene, started laying off several hundred employees in the area.

The layoffs reflect the shift in Fannie Mae's focus since it was taken over by the government in September. The firm, once geared toward mortgage bundling and trading activity -- which had been based in the District -- is moving toward foreclosure-prevention efforts, which are based in Dallas. Roughly as many employees are being hired there as are being laid off here.

McLean-based Freddie Mac also has started to transfer jobs into foreclosure-prevention areas, but that effort is having a minimal impact on the number of jobs available locally.

Mounting troubles in the financial and housing markets are causing increasing losses at Fannie Mae and Freddie Mac, just as they have for U.S. banks, and Fannie Mae has said it may also request taxpayer assistance.

Freddie Mac's disclosure comes after the original government outlays to bolster American International Group, Bank of America and Citigroup were deemed insufficient. The government has allocated more than $100 billion each for Fannie Mae and Freddie Mac, but some analysts have said they may need more.

Fannie Mae and Freddie Mac help provide liquidity to the mortgage markets by buying and guaranteeing loans and packaging them into securities that can be sold to investors. This activity helps free lenders to make more loans and keeps the mortgage machinery well-oiled.

In recent months, their efforts have been supplanted by government plans to buy hundreds of billions of dollars in mortgages.

Default rates on the entire range of mortgages owned or backed by the companies -- from infamous subprime adjustable loans to old-fashioned 30-year fixed -- have been fast rising.

The rising default rates have already caused big losses at the companies.

Under the government's agreement with the companies, the Treasury Department is required to inject money in any quarter when the companies' liabilities exceed their assets. In November, Fannie Mae and Freddie Mac announced a combined $54 billion in losses for the months of July through September.