Freddie Mac Loses $4.1B, Asks for a Bailout

November 6 2010 (Chris Moore)
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Freddie Mac reported this week that it sustained a net loss of $4.1 billion for the third quarter of 2010 has asked the Treasury Department for a draw of $100 million under the Senior Preferred Stock Purchase Agreement.

The mortgage giant blamed the loss on a sagging U.S. housing market and said that it will be a “considerable time” before the housing market recovers.

CEO Charles Haldeman said, “As we near the end of 2010, the housing market remains fragile, and has recently come under renewed pressure from slowing economic growth, weaker employment and foreclosure uncertainties.”

The company had a net worth deficit of $58 million at Sept. 30, 2010, compared to a net worth deficit of $1.7 billion at June 30, 2010, the end of Q2. The deficit in net worth for the third quarter resulted from several contributing factors, including a dividend payment of $1.6 billion to Treasury, which exceeded total comprehensive income of $1.4 billion, prompting the request to the Treasury Department.

Supporters of Freddie and its sister Fannie Mae have asked the Treasury Department to reconsider the terms of its dealings with the companies, particularly the 10 percent dividend they must pay in exchange for federal funds they receive as payment for preferred shares.

The NATIONAL ASSOCIATION OF REALTORS® (NAR) supports the move, saying, “Eliminating a punitive dividend is a step that should be taken now, regardless of how the GSEs may be restructured in the coming years.”

Freddie Mac continues to be a source of affordable mortgage funding, estimating that it owned or guaranteed approximately 23 percent of the outstanding single-family mortgages in the U.S. as of Sept. 30, 2010, and provided $97 billion in liquidity to the mortgage market during the third quarter. Since the beginning of 2010, Freddie Mac has helped nearly 1.4 million American families own or rent a home.

Tags: freddie mac, NAR, treasury department, affordable mortgage, mortgage market, housing market