Freddie Mac Reports Profit; Won't Tap Treasury for More Aid
Saturday, August 8, 2009
Freddie Mac, after having received $51 billion in taxpayer aid since last fall, reported its first quarterly profit in two years on Friday and said that it doesn't need any more government money for now.
In another sign of stabilization in the financial markets, the McLean mortgage-finance giant said it earned $768 million in the second quarter, compared with a loss of $821 million in the corresponding period last year.
Freddie Mac is run by federal regulators and has a $149 billion government backstop available if it falters. It is carrying out elements of the Obama administration's housing recovery plan, including modifying home loans to reduce foreclosures.
The government is a significant shareholder in the company and its sibling, Fannie Mae. After factoring in a $1.1 billion payment to the Treasury for dividends on preferred shares held by the government, Freddie Mac lost $374 million, or 11 cents per share, during the second quarter.
The company has lost $64 billion over the past two years, mostly because it bought mortgage investments consisting of subprime and other risky loans. As the mortgage market fell apart, the value of those investments plummeted, causing the deep losses.
The mortgage market has since rebounded as the economy has stabilized, lifting the value of many of those investments and fueling Freddie Mac's profit. In addition, the company was aided by recent changes in accounting rules.
Freddie Mac, however, warned that the improvement in its financial outlook does not mean its need for government aid has ended.
The company said there have been some positive developments in the housing market, including more sales and a "modest" improvement in prices. But it said that those gains may be seasonal or a result of sales of foreclosed properties.
It said the recession and declines in household wealth were likely to fuel more challenges for Americans trying to keep up with the monthly payments on their home loans.
"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," said John Koskinen, Freddie Mac's acting chief executive.
Koskinen is stepping down on Monday to make way for new chief executive Charles E. Haldeman Jr., the former chief executive of asset management firm Putnam Investments. Koskinen will return to his role as chairman of the company's board.