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Freddie Mac to Ask Treasury for Another $1.8 Billion

by devteam August 14th, 2010 | Share

Freddie Mac has announced thatrnit will be requesting an additional $1.8 billion cash infusion from thernTreasury Department based on the results of its Second Quarter 2010 financialrnstatement released on Tuesday.  Therngovernment sponsored enterprise (GSE) reported a net loss attributable torncommon stockholders of $6.0 billion, or $1.85 per diluted common share comparedrnto a net loss attributable to common stockholders of $8.0 billion, or $2.45 perrndiluted common share, for the first quarter of 2010.  The total reflected a $1.3 billion stockrndividend payable to the U.S Treasury under the terms of its Senor PreferredrnStock Purchase Agreement.  The net loss attributablernto Freddie Mac of $4.7 billion for the quarter compared to $6.7 billion inrnQuarter One. </p

The company said that thernnet loss during the quarter was negatively impacted by an out-of-periodrnaccounting adjustment with the cumulative effect of $1.2 billion net ofrntaxes.  This was the result ofrnidentifying a backlog related to the processing of “certain foreclosurernalternatives reported to the company by its servicers, principally loanrnmodifications and short sales.” rnThis resulted in erroneous loan data within loan reporting systems andrnsignificantly affected its financial accounting and reporting systems.  </p

Freddie Mac had interestrnincome of $27.9 billion compared to $28.6 in the first quarter and net interestrnincome of $4.1 billion, virtually unchanged from the previous quarter.  $5.0 billion of the net interest income wasrnset aside as a provision for credit loss.  Non-interest income of ($3.6) billion was arnsubstantial improvement over the ($4.9) billion in the period ended March 31rnand included a derivative losses of $3.8 billion compared to $4.7 billion inrnthe prior period. </p

Non-interest expenses werern$479 million compared to $667 million the previous quarter and $1.21 billionrnfor the second quarter of 2009.  Therncurrent quarter tally included 387 million in administration expenses and $40rnmillion in expenses related to owned real estate.</p

During the quarter therncompany charged off $3.92 billion in debt or 0.80 percent of the total mortgagernportfolio.  This was a substantialrnincrease over the $2.77 billion or 0.56 percent charged off in QuarterrnOne.  There are currently $118.7 billionrnin non-performing assets in the portfolio compared to 116.1 billion lastrnquarter.  Non-performing assets representedrn5.9 percent of the portfolio in the second quarter and 5.8 percent in thernfirst.  The single family delinquencyrnrate however dropped from 4.13 percent to 3.96 percent.</p

The company's announcement thatrnit was requesting a $1.8 billion draw from the Treasury comes days after FanniernMae announced it would make a similar request for $1.5 billion. This draw willrnbring the company's total indebtedness to the government to $64.1 billion. </p

The unpaid principalrnbalance of the company's mortgage-related investments portfolio was $739.5rnbillion at June 30, 2010, down from $753.3 billion at March 31, 2010, due tornongoing liquidations of the company's existing holdings outpacing purchasesrnduring the period as a result of a lack of favorable investment opportunities.rnThe majority of the company's purchases consisted of purchases of delinquentrnloans from PC trusts.</p

The balance of therncompany's single-family credit guarantee portfolio was $1.87 trillion at Junern30, 2010, down from $1.88 trillion at March 31, 2010, primarily due tornliquidations exceeding new business activity in the second quarter. </p

During the quarter justrnended, Freddie Mac acquired 34,667 units of owned real estate and disposed ofrn26,316 units.  The current inventoryrnstands at 62,190 units compared to 53,839 units at the end of the first quarter.</p

“Freddie Mac continuesrnto support the still-fragile housing market by providing America's familiesrnwith access to affordable home financing and foreclosure alternatives,”rnsaid Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr. “Wernhelped more than 150,000 struggling borrowers avoid foreclosure and providedrnfunding that enabled more than 865,000 American families to buy or rent a homernin the first half of 2010 – during which the GSEs again supplied the majorityrnof all the liquidity to the U.S. mortgage market.</p

“At the same time, wernare promoting sustainable homeownership by helping families buy homes that theyrncan afford and keep for the long term,” said Haldeman. “We recognizernthat high unemployment and other factors still pose very real challenges forrnthe housing market, and with that in mind, we continue to focus on the qualityrnof the new business we are adding to our book to be responsible stewards ofrntaxpayer funds as we support the nation's housing market.” </p

As Fannie Mae did earlier in its second quarter report, Freddie Macrnexpressed confidence in the improving quality of its portfolio of loansrnoriginated since improved underwriting guidelines were put in place inrn2009.  These loans have experiencedrnsignificantly better delinquency trends this early in their lifecycle thanrnloans originated in the 2005-2008 period.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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