Freddie Mac Posts Profit despite Losses to Foreclosures

Posted on August 11th, 2009 in Foreclosure

Freddie Mac posted its first net income in 2 years in the second-quarter report it filed with the Securities and Exchange Commission despite losses to distressed homes.

It reported $768 million in net income, which arose from the decrease in reserves for future loan losses, accounting adjustments, lower funding costs and gains from the increase in long-term interest rates.

The report also stated that it was not asking for more financial assistance from the Treasury. Since November last year, Freddie Mac has received $50.7 billion from the federal government to be able to function. Over the previous 7 quarters, it has already posted $63.7 billion in total losses.

It has also been dependent on a preferred stock purchase contract worth $200 billion with the Treasury Department to be able to operate.

Freddie Mac interim CEO John Koskinen said the aid from the Treasury has been keeping Freddie Mac solvent and preventing it from being run by a receiver under federal regulations.

In contrast, Fannie Mae posted a loss of $14.8 billion in the second quarter, bringing its total losses over two years to $101.6 billion. It also made a request of $10.7 billion more in financial aid from the Treasury, bringing its total withdrawal from the Treasury since April to $44.9 billion.

Since December 2007, the quality of mortgage bonds and loans owned or guaranteed by Freddie Mac has deteriorated as more of its mortgages entered foreclosure. According to a nationide survey of foreclosures, more than 1.5 million residential properties received default or foreclosure notices in the first 6 months of the year, a 15-increase from filings in the first 6 months of 2008.

Freddie Mac also stated that its net worth in the second quarter was $8.2 billion, a substantial improvement from the negative $6 billion net worth in the first quarter. It posted $5.2 billion as provision for future loan losses and expenses, a decrease from the $9.1 billion provision in the first quarter.

In the second quarter of 2008, Freddie Mac posted a loss of $821 million.

Freddie Mac and Fannie Mae were created by the federal government primarily to make home loans affordable to homebuyers. They buy home loans from lenders and also sell and guarantee mortgage-backed securities.

Since April, they have been integral in the implementation of the Obama administration?s Making Home Affordable Program. Freddie Mac and Fannie Mae said they expect to suffer losses as they refinance or modify the home loans of up to 9 million distressed homeowners.

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