Say Brother, Can You Spare $14 Billion?

November 10, 2011 (Chris Moore)

Government Sponsored Enterprises (GSEs) Freddie Mac and Fannie Mae together have requested nearly $14 billion in aid to cover losses posted in the latest July to September quarter.

Freddie Mac reported a total comprehensive loss of $4.4 billion for the quarter and made a quarterly dividend payment of $1.6 billion to the Treasury Department resulting in a net worth deficit of $6.0 billion.

With the draw request of $6 billion to the Treasury to cover its net worth deficit, the cumulative total that Freddie Mac has borrowed through then end of the third quarter is $72.2 billion.

Freddie’s net interest income for the quarter was $4.4 billion but was offset by derivative losses of $4.8 billion and credit losses of $3.6 billion. The third quarter’s loss was more than double the $2.1 billion loss in the previous quarter and was the largest aid request since the first quarter of 2010.

“Our financial performance in the third quarter was impacted by the weak housing market, as well as challenging financial market conditions. Freddie Mac was a stabilizing force in the mortgage market, ensuring the continuous flow of funds to lenders and borrowers and helping families avoid foreclosure. We also made further progress this year on becoming a stronger and more efficient company – adding high quality loans to our book and streamlining operations. Taken together, these efforts are maximizing the value of our assets for America’s taxpayers, and reinforcing the housing finance system.” said Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr.

Fannie Mae reported a total comprehensive loss of $5.3 billion in the third quarter and made a quarterly dividend payment to the Treasury Department of $2.5 billion resulting in a net worth deficit of $7.8 billion.

To cover its net worth deficit, Fannie Mae made a draw request of $7.8 billion to the Treasury Department bringing the cumulative total that Fannie Mae has borrowed at the end of the third quarter to $111.6 billion.

Fannie’s net interest income for the quarter was $5.5 billion but was offset by credit losses of $4.9 billion and fair value losses of $4.5 billion driven primarily by losses on risk management derivatives due to a significant decline in swap interest rates during the quarter. The third quarter’s loss was more than triple the $2.3 billion loss in the previous quarter.

“Our results in the third quarter were significantly affected by continued weakness in the housing market and the economy overall. Despite these challenges, we are making solid progress. We are growing a strong new book of business that now accounts for nearly half of our overall single-family guaranty book of business,” said Michael J. Williams, president and chief executive officer. “We help homeowners to avoid foreclosure and provide liquidity to enable working families to buy a home or secure quality affordable rental housing. We are committed to building a stronger housing finance system for the future, and strengthening Fannie Mae to deliver value to customers, families, taxpayers, and the industry.”

Taxpayers have so far spent about $170 billion to rescue Fannie and Freddie with that amount expected to rise to almost $184 billion when the current draw requests are fulfilled.

Tags: GSE, Freddie Mac, Fannie Mae, comprehensive loss, credit losses, derivative losses, weak housing market, low mortgage rates, quality loans

Sources:
Freddie Mac
Fannie Mae