NEW YORK, May 13 — Freddie Mac, the second largest provider of funding for US residential mortgages, yesterday said it needs US$6.1 billion (RM21.4 billion) from the Treasury after falling home prices and delinquent loans fuelled its seventh consecutive quarterly loss.
Freddie Mac said its loss ballooned to US$9.9 billion in the first quarter from a US$151 million deficit a year earlier, though the loss shrank from a US$23.9 billion hole at the end of 2008.
Freddie Mac’s loss follows a US$23.2 billion first-quarter deficit at larger rival Fannie Mae, which needs US$19 billion in capital from the Treasury.
Freddie Mac’s first-quarter loss came as eroding home prices and the economic recession forced it to ramp up its provision for credit losses to US$8.8 billion, from US$7 billion in the fourth quarter, the company said. Total credit expenses rose to US$9.1 billion from US$7.2 billion, due to rising expenses of managing properties owned through foreclosure
Freddie Mac said its regulator had made the capital request — its third in as many quarters — from Treasury, which agreed when seizing the company and Fannie Mae in September to inject money via senior preferred stock purchases.
The new capital would raise the aggregate amount of Freddie Mac’s draw on Treasury to US$51.7 billion. That amounts to a quarter of the total US$200 billion pledged by the government to support the company, which was forced into a conservatorship in September to ensure it will continue to support the housing market in a time of distress.
The McLean, Virginia-based company and Fannie Mae are crucial cogs to the nation’s housing system, providing a market for loans that lenders originate. They buy mortgages for their US$1.7 trillion in debt-financed portfolios or guarantee loans packaged into mortgage-backed securities.
But they misjudged the downturn, the worst since the 1930s, sending them into the arms of the government, which has since also rescued banks, insurance companies and auto makers.
Despite continuing losses, the company gave a nod to signs that the housing crisis has eased. For instance, pending sales of US homes rose in March for a second straight month.
“While we expect the coming quarters to be difficult, we are seeing preliminary signs of slowing in home price declines as low mortgage rates and high affordability take hold,” John Koskinen, Freddie Mac’s interim chief executive officer, said in a statement.
Write-downs on risky mortgage securities of US$7.1 billion in the first quarter, compared with US$7.5 billion at the end of 2008, also weighed on results and more than offset growth in net income from its investment portfolio.
Like Fannie Mae, Freddie Mac said its participation in foreclosure prevention efforts was hurting its ability to return to profitability. Losses on loans purchased out of mortgage securities because they were delinquent or for modifications jumped to US$2 billion in the quarter from US$1.2 billion in the fourth quarter, and will likely increase in 2009, it said. — Reuters
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