Losses Narrowed in 2009. Enterprise Financed Over Two Million Homes

by devteam February 24th, 2010 | Share

FreddiernMac reported today that its losses during 2009 were less than half of its huge shortfallrnin 2008.  Net losses in 2009 totaledrn$21.6 billion on net interest income of $17.1 billion and total revenues ofrn$14.3 billion.  In 2008 the government sponsoredrnenterprise lost $50.1 billion, on net interest income of $6.8 billion and totalrnrevenues of ($22.4) billion.  However,rnafter a dividend payment of $4.1 billion on its senior preferred stock held byrnthe U.S. Treasury, the 2009 net loss attributed to stockholders was $25.7rnbillion or $7.89 per diluted common share. rnIn 2008 the losses amounted to $34.60 per common diluted share.

FreddiernMac also announced results of the fourth quarter of 2009 during which it lostrn$6.5 billion compared to ($5.4) billion in the third quarter.  During the third quarter interest income wasrn$4.5 billion, nearly identical to income during Quarter 3.

Resultsrnfor both reporting periods were negatively impacted by credit related expensesrnreflecting the economic conditions during the year.  These expenses totaled $7.1 billion in thernfourth quarter and $29.8 billion for the full year.  Low Income Housing Tax Credit (LIHTC)rnpartnership expenses also impacted the bottom line at $3.4 billion for thernquarter and $4.2 billion for the year.  Thisrnexpense was driven primarily because the Federal Housing Finance Agency andrnTreasury Department informed Freddie Mac that it could not sell or transferrnthese partnerships.  As it could see nornother way of disposing of the assets, the carrying value of the partnershiprnagreements was written down to zero as of December 31, 2009.  

Non-interestrnincome during the fourth quarter rose from ($1.4) billion to 883 million.  Included in this figure were netrnmark-to-market gains of $2.1 billion compared to gains of $42 million duringrnthe third quarter.  The fourth quarterrngains reflect the effect of higher long-term interest rates and tighter spreadsrnon the company's derivative portfolio, guarantee asset, and trading securities.

Creditrnrelated expenses related to provision for credit losses and real estate ownedrndeclined during the fourth quarter to $7.1 billion from $7.9 billion in thernthird quarter but rose to $29.8 billion for all of 2009 compared to $17.5rnbillion the previous year.  However, thernthird quarter figure was revised upward by $400 million to correct for errorsrnfound in computing earlier single family loan loss reserves.

Therncompany's net worth at the end of 2009 was $4.4 billion.  As a result of the positive net worth, nornadditional funding from the Treasury Department was required during the fourthrnquarter under the terms of the Senior Preferred Stock Purchase Agreement.  The company said that it does expect it willrnrequest additional draws under its Purchase Agreement in future periods. 

As wasrnlargely unreported because it occurred on Christmas Eve, the Purchase Agreementrnbetween Treasury and Freddie Mac was amended to essentially remove the existingrn$200 billion cap on Treasury's funding commitment.  The amendment also changed the requirementrnthat Freddie Mac reduce the size of its mortgage-related investment portfoliornby 10 percent a year.  Under thernamendment, the required annual reduction will be calculated based on thernmaximum allowable size of the portfolio rather than the actual balance of the mortgage-relatedrninvestments portfolio on December 31 of the preceding year.

Therncompany's report covered its accomplishments during the year.  Freddie Mac said it played a critical role inrnsupporting the nation's housing market by:

  • Providing $548.4 billion of liquidity to the mortgage market, helpingrnfinance approximately 2.2 million conforming single-family loans andrnapproximately 253,000 units of multifamily rental housing.
  • Helping more than 272,000 borrowers stay in their homes or sell theirrnproperties through the company's long-standing foreclosure avoidance programsrnand the Home Affordable Modification program (HAMP), including 129,380 loans thatrnremained in HAMP trial periods as of December 31, 2009. Including HAMP and otherrnFreddie Mac programs, the company participated in 65,044 loan modifications,rn33,725 repayment plans, 21,355 forbearance agreements and 22,591rnpre-foreclosure sales.
  • Refinancing approximately $379 billion of single-family loans, creatingrnan estimated $4.5 billion in annual interest savings for borrowers nationwide -rnthis includes approximately 169,000 borrowers whose payments were reduced by anrnaverage of $2,000 annually under the Freddie Mac Relief Refinance Mortgage.

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About the Author


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

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