Mortgage giant Freddie Mac asks government for $19M; posts $1.2B loss in Q1

Mortgage giant Freddie Mac asks government for $19M; posts $1.2B loss in Q1

by | May 3, 2012 | News

Washington Post By Associated Press, Updated: Thursday, May 3, 9:46 AM

WASHINGTON — Government-controlled mortgage giant Freddie Mac is requesting $19 million in additional federal aid after posting a loss for the first quarter of this year.

The requested amount is less than the $146 million that Freddie received from the government for the fourth quarter of 2011. The company received $7.6 billion for all of 2011 and $13 billion for all of 2010.

McLean, Va.-based Freddie Mac said Thursday that its net loss attributable to common stockholders was $1.2 billion, or 38 cents a share, in the January-March period. That compares with a net loss of $929 million, or 29 cents a share, in the first quarter of 2011.

The government rescued Freddie and larger sibling Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them. Taxpayers have spent roughly $170 billion to rescue Fannie and Freddie, the costliest bailout of the 2008 financial crisis. It could cost about $200 billion more to support the companies through 2014 after subtracting dividend payments, according to the government.

The first-quarter net loss takes into account $1.8 billion in dividend payments that Freddie made to the government, its primary shareholder.

Fannie and Freddie are required to pay 10 percent dividends on the government money they receive.

In some past quarters, Freddie hasn’t asked for any government aid. But the $19 million it is requesting for the first quarter is the smallest request it has ever made. Freddie has paid more to the government in dividends than it has taken in aid in the last five quarters, the company said.

About a third of the company’s holdings are home loans issued between 2005 and 2008, which accounted for 88 percent of its losses in the first quarter. Freddie said those loans are becoming a smaller proportion of its portfolio, and that over time that should have a positive impact on its finances.

Freddie and Washington-based Fannie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans, which are worth more than $5 trillion. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year.

Freddie CEO Charles E. Haldeman Jr. noted that an effort is underway to streamline the company.

“We have also stayed focused on maintaining the flow of funds to the market and preventing foreclosures,” Haldeman said in a statement. “In the first quarter, we helped over 577,000 families own or rent their home, adding more quality loans to our portfolio.”

The housing market has slowly begun to improve, but has a long way to go before it’s healthy. Many homeowners are still defaulting on their mortgages. Unemployment remains high at 8.2 percent.

Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default, and then sell them to investors around the world. When property values drop, more homeowners default, either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must cover the losses.

Pressure continues on the government to eliminate Fannie and Freddie and reduce taxpayers’ exposure to risk. The Treasury Department put forward a plan last year to slowly dissolve the companies, though that process could take years. Abolishing Fannie and Freddie would transform how homes are bought and redefine who can afford them.

Word came Monday that a top Freddie executive is leaving the company about a year after he was promoted to oversee its single-family mortgage business. Anthony Renzi resigned to accept a job with another financial company. Renzi’s departure as executive vice president of single-family business and operations and technology takes effect this month.

The move is the latest in a series of departures of top executives from Freddie and Fannie. Freddie CEO Haldeman and Fannie CEO Michael J. Williams both plan to step down this year.

The government said recently it will cap pay for Freddie and Fannie chief executives at $500,000 per year and eliminate annual bonuses for all employees. Those changes came after Congress pressured the government to stop big payouts at the bailed-out companies.

The federal agency that oversees Freddie and Fannie also said it would cut pay for about 50 other executives at the two companies. Those employees are still eligible to earn salaries above the cap.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


On behalf of the Washington Post, Associated Press

 May3, 2012