May 9, 2011 (Chris Moore)
Earnings for the two government owned mortgage companies, Freddie Mac and Fannie Mae, went in completely opposite directions in the first quarter of 2011 as Freddie Mac reported $676 million in net income and Fannie Mae lost $8.7 billion which triggered a request for $8.5 billion in additional financial aid. Freddie Mac reported its net worth to be $1.2 billion at the end of the quarter and as a result would not need any additional funding at this time.
This was the first time since the fourth quarter of 2009 that Freddie Mac did not need financial assistance from the Treasury Department. For fiscal year 2010, Freddie received $13 billion in financial assistance to cover deficits. Since 2008 when the mortgage giant went into conservatorship, it has received nearly $65 billion in taxpayer support.
Fannie Mae’s request for $8.5 billion brings the total financial aid required for the GSE to nearly $100 billion, the largest bailout for a single company ever.
Home prices declined an average of 1.8 percent during the quarter according to Fannie Mae which led to more foreclosures and more homes being abandoned due to their worth being less than the mortgages owed.
“We expect our credit-related losses to remain elevated in 2011 as we continue to be negatively impacted by the prolonged decline in home prices,” President and CEO Michael Williams said in a statement.
Most of the losses were related to loans that Fannie obtained before 2009. Loans that the company acquired after January 2010 are performing well and Fannie expects to make money on those loans.
Freddie Mac reports that single family loans that it has obtained in 2009, 2010, and 2011 continue to demonstrate strong credit quality. The single family delinquency rate continues to improve, as the rate stood at 3.63 percent at the end of the first quarter compared to 3.84 percent at the end of the fourth quarter in 2010.
Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr. said, “Our outlook remains cautious. Continued improvements on the employment front and in early-stage delinquencies were positive signs during the quarter, but we believe large inventories of unsold homes and a high number of distressed sales will continue to put downward pressure on home prices in many neighborhoods.”
Home prices in Freddie Macs loan portfolio decreased by an estimated 2.8 percent in the quarter. Through its own workout programs and the Home Affordable Modification Program, Freddie Mac continued its foreclosure prevention efforts, helping more than 62,000 struggling borrowers avoid foreclosure in the first quarter of 2011. Importantly, 83 percent of these borrowers were able to retain their homes.
Tags: Freddie Mac, Fannie Mae, mortgage giants, GSE’s, earnings, Treasury Department, financial assistance, taxpayer bailout, delinquency rate, HAMP, net income, losses