By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, May 13, 2009
Freddie Mac yesterday reported that it lost $10 billion in the first three months of the year, as investments in mortgages continued to fall in value at the federally run housing finance giant.
The disclosure automatically prompts a $6 billion investment from the Treasury Department to keep the company solvent, bringing Freddie Mac's bailout total to $51 billion in the first nine months of its government rescue.
McLean-based Freddie Mac characterized the losses as the result of continued declines in the economy, but also said there are some bright signs.
"This was another difficult quarter for Freddie Mac, as declining home prices and the weak economy continued to take a toll on our results," said John Koskinen, Freddie Mac's interim chief executive.
"While we expect the coming quarters to be difficult," he added, "we are seeing preliminary signs of slowing in home-price declines as low mortgage rates and high affordability take hold."
Last week, Fannie Mae reported that it lost $23.2 billion in the first three months of the year as mortgage defaults increasingly spread from risky loans to the far-larger portfolio of loans to borrowers who have been considered safe. The loss brought District-based Fannie Mae's total bailout to $34 billion.
Freddie Mac's $10 billion loss compares with a $149 million loss in the same quarter last year. It was far smaller than the fourth-quarter loss, which was $24 billion.
The federal government has pledged $200 billion to offset losses at each mortgage giant. In the years of the housing boom, Freddie Mac, even more than its counterpart Fannie Mae, moved swiftly into buying mortgage investments created out of pools of loans made to people with weak credit histories or no proof of income or employment.
Freddie Mac said it had helped prevent 40,000 foreclosures and realigned its business to carry out the Obama administration's Making Home Affordable Program, designed to help struggling borrowers stay in their homes.
In its last quarterly disclosure, Freddie Mac warned that it might have to record a $30 billion charge as a result of carrying out the program. The firm was able to escape the loss on the program, however, because the Securities and Exchange Commission last month signed off on an accounting approach that wouldn't require registering the loss.
Still, the programs have a cost.
"We have changed certain business practices to provide support for the mortgage market in a manner that serves public policy and other non-financial objectives but that may not contribute to profitability," Freddie Mac said in its disclosure. "Some of these changes increased our expenses or required us to forego revenue opportunities in the near term."
The increase in the size of Freddie Mac's rescue will require the company to pay the Treasury a dividend of more than $5 billion a year. That is far more than the company has earned in any year -- even when it was profitable. Fannie Mae and Freddie Mac may have to borrow government money to pay the dividends owed to the government.
The federal government seized Fannie Mae and Freddie Mac last September out of concern that they would collapse and threaten the entire financial system.
Freddie Mac has since been battered by several factors, including the apparent suicide last month of its acting chief financial officer, David Kellermann. Though no reason for the death is known, he was said to be under intense stress.