Freddie Mac Needs $500M More from Taxpayers after Q4 Loss
By: Carrie Bay
Freddie Mac reported Thursday that it lost $113 million in the fourth quarter of 2010. The loss, compounded by the company’s $1.6 billion quarterly dividend payment to Treasury on stock the company relinquished in exchange for bailout money, left the GSE with a net worth deficit of $401 million as of December 31, 2010.
To eliminate this deficit Freddie’s regulator, the Federal Housing Finance Agency is requesting another draw from Treasury, this time to the tune of $500 million. With this disbursement, Freddie Mac has drawn a total of $64.7 billion in taxpayer dollars to cover capital losses since September 2008 when the company was placed into conservatorship by the federal government.
The company’s fourth-quarter deficit was actually the smallest of 2010 and caps off a year of steady declines in the amount of quarterly shortfalls. In the previous quarter, the GSE lost $2.5 billion; in the second quarter of last year, it was in the red by $4.7 billion; and it started 2010 with a $6.7 billion first-quarter loss.
The Q4 results bring the GSE’s losses for the full-year 2010 to $14 billion. That too is down from a net loss of $21.6 billion in 2009.
“Last year we not only added strength and stability to the housing market but we also strengthened Freddie Mac itself,” said CEO Charles E. Haldeman, Jr. “We did this by improving the quality of our new business [and] streamlining our operations.”
In its latest earnings report, Freddie Mac noted that the average balance of its mortgage-related securities declined in the fourth quarter as liquidations continued to outpace purchases.
The GSE’s single-family credit guarantee portfolio was $1.81 trillion at December 31, 2010, as measured by unpaid principal balance, compared to $1.84 trillion at September 30, 2010. The company explained that the decrease was primarily due to liquidations exceeding new guarantee activity in the fourth quarter, driven by an increase in refinancings.
Freddie stressed that new single-family business acquired over the last two years “continues to demonstrate strong
credit quality based on borrower credit scores and loan-to-value ratios.” As of the end of last year, approximately 39 percent of the company’s single-family credit guarantee portfolio consisted of mortgage loans originated in 2009 and 2010.
The company’s single-family serious delinquency rate was 3.84 percent at December 31, 2010 – a level which the GSE says “remains below industry benchmarks.”
The multifamily mortgage portfolio was $108.7 billion at December 31, 2010, compared to $104.5 billion at September 30, 2010, as the GSE purchased a higher volume of multifamily mortgage loans during the fourth quarter. The multifamily delinquency rate was 0.26 percent as of the end of last year.
The company’s provision for credit losses was $3.1 billion for the fourth quarter of 2010, compared to $3.7 billion for the third quarter of 2010. For all of last year, Freddie set aside $17.2 billion to cover anticipated loan losses within both its single-family credit guarantee portfolio and multifamily mortgage portfolio.
Through its own workout programs and the federal government’s Home Affordable Modification Program (HAMP), Freddie Mac expanded its foreclosure prevention efforts, helping more than 275,000 borrowers avoid foreclosure in 2010 – more than double the number it helped in 2009. The company says 86 percent of these borrowers were able to retain their homes.
Freddie Mac’s REO operations expense for the fourth quarter of 2010 was $217 million, compared to $337 million for the third quarter of 2010. REO operations expense primarily consists of expenses incurred to maintain foreclosed properties, valuation adjustments on properties, disposition gains or losses, and recoveries. The GSE says the decrease relative to the third quarter reflects lower property write-downs due to a smaller decline in REO fair values during the fourth quarter.
REO operations expense for the full-year 2010 was $673 million. The company expects its REO inventory to continue to grow in 2011, however, the pace of REO acquisitions “could slow due to further delays in the foreclosure process, including delays related to concerns about deficiencies in foreclosure documentation practices,” Freddie said.
“As we begin 2011, the housing recovery remains vulnerable to high levels of unemployment, delinquencies, and foreclosures,” Haldeman added. “Nevertheless, certain economic indicators showed improvement in late 2010. While this trend offers some encouragement, we expect national home prices to decline this year as housing will continue to take some time to recover. Freddie Mac will be there every step of the way – offering help to families facing foreclosure, providing support for rental housing, and lowering costs for homebuyers and homeowners.”
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