Freddie Mac earnings hurt by loan delinquencies
Mortgage giant posts $5 billion loss but says it won't need aid
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Mortgage finance giant Freddie Mac reported a third-quarter loss of $5 billion, but the federally controlled company said it did not need an additional infusion of government cash.
The loss works out to $1.94 per share, compared with a loss of $19.44 per share, or $25.3 billion, in the year-ago period. After factoring in $1.3 billion in dividends paid to the Treasury Department, Freddie Mac's losses for the three months ended Sept. 30 total $6.3 billion.
The McLean-based company has received about $51 billion since it was seized by federal regulators in September 2008 but said for the second straight quarter that it didn't need any more money.
"We continued to see some positive housing market developments, including higher volumes of home sales and modest increases in house prices in certain areas of the country," the company's new chief executive, Charles E. Haldeman Jr., said in a statement.
However, Haldeman cautioned that high unemployment and rising foreclosures will continue to "impede a full recovery" and that the company may still need additional money from the Treasury Department to stay afloat. The government reported Friday that the unemployment rate hit 10.2 percent, the highest level since early 1983.
The results were affected by $7.6 billion in credit losses as the company continued to build its reserves for bad mortgages. About 3.3 percent of Freddie Mac's borrowers are at least three payments behind on their mortgages, more than double the rate last year.
The problems at Freddie Mac and its sibling Fannie Mae have proven far worse than most experts had foreseen. On Thursday, Fannie Mae asked the government for another $15 billion, bringing the tab for rescuing both companies to about $111 billion.
Fannie Mae and Freddie Mac play a vital role in the mortgage market by purchasing loans from banks and selling them to investors. Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages.
The two companies lowered their standards for borrowers during the real estate boom and are reeling from the consequences. High-risk loans, now defaulting at a record pace, have come back to haunt the companies. Worse still, the recession is causing formerly reliable homeowners with good credit to default.
