Freddie Mac Seeks $6 Billion Bailout After Worst Quarterly Loss This Year

Mortgage finance giant Freddie Mac said on Thursday it will seek an additional $6 billion from U.S. taxpayers following its worst quarterly loss this year.

The government-owned company reported a comprehensive loss in the third quarter of $4.4 billion, it said in a filing with the U.S. Securities and Exchange Commission. That compared with a $2.5 billion loss for the same three-month period in the previous year.

Despite income of $4.6 billion, the company registered a net worth deficit of $6.0 billion, which was partly attributed to a $1.6 billion quarterly dividend payment to the Treasury.

"The weak labor market and fragile economy continue to weigh heavily on the single-family market, causing many potential buyers to sit on the sidelines or opt to rent despite high affordability and record low mortgage rates," Chief Executive Officer Charles E. Haldeman said in a statement.

Freddie Mac has now drawn $72.2 billion from the government since it was taken over at the height of the financial crisis in September 2008. The government seized both Freddie Mac and larger rival company Fannie Mae as mortgage losses at the two firms piled up and threatened them with insolvency.

Freddie Mac has now returned $14.9 billion of the money it has drawn from Treasury in the form of dividend payments.

"Looking ahead, we expect the tepid recovery to continue to put downward pressure on house prices into early next year," Haldeman said.

Earnings reports earlier in the year had shown Freddie Mac setting aside less money to cover potential credit losses. This quarter, Freddie set aside a $3.6 billion provision for credit losses from single-family home loans.

Aside from continued weakness in housing, Freddie's performance in the third quarter was impacted by losses on derivatives that are used to hedge exposure to interest rates movements. Freddie Mac posted $4.8 billion worth of derivatives losses for the quarter, compared with $1.1 billion from the same period a year earlier.

The regulator for Freddie Mac and Fannie Mae last week predicted the two firms' cumulative net costs to U.S. taxpayers will be $121 billion to $193 billion through 2014, with future dividend payments taken into account. That's down from a year-earlier forecast of cumulative capital needs likely falling between $221 billion and $363 billion through 2013.

Both Fannie Mae and Freddie Mac have drawn about $175 billion that the government since they were seized in 2008 and have returned about $30 billion. So far, the two firms have cost taxpayers about $145 billion.

(Reporting by Margaret Chadbourn; Editing by Chizu Nomiyama and Jan Paschal)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[justgrl03]

05:34 AM on 11/06/2011

OH COME ON!!!!! Enough is enough. We are already busting at the treads.

[Jondrea Smith]

06:54 PM on 11/04/2011

Every bailout dollar should come with at least 50 cents of writedown of student loan debt.

[jantomnidrah]

12:44 PM on 11/04/2011

This is the company Barney FRANK said was solvent and blah blah blah, and now they want we who work to pay how many Billion for this unorganized gang bang. Seem as tho they just gave a retiring CEO several million dollars in bonuses before retirement. Wake up America

[Miss Muffett]

12:36 PM on 11/04/2011

Instead of bailing out Freddy, wouldn't it make vastly more sense to use that $6B to write off principal balances of homeowners either facing forclosure or extremely underwater? That would help Freddy get rid of toxic AR on their books, would keep families off the street and in their homes, as well as score political points all around for actually doing something meaningful to aid the housing market by bringing house prices down (owners will be able to sell for less since they owe less).

[Bill Roth]

11:29 AM on 11/04/2011

Just give all the mortgages back to the banks dollar for dollar. The banks seem to have plenty of cash on hand . With record bonuses and all they should be able to shoulder this mess that they themselves created. At the very least give 6 billion dollars worth back to them. Too easy I guess. We wouldn't want them to feel any stress from this mess. Smart ones them folks.

[hart42rich]

10:19 AM on 11/04/2011

Let them go under, Freddie Mac is a primary reason for the junk bonds that helped trigger the recession, with Barney Frank and Christopher Dodd's guidance.

[Miss Muffett]

12:30 PM on 11/04/2011

You should brush up on your recent history. Fannie and Freddy were only quasi-government agencies until they were fully subsidized under Bush W.

[xhawk2]

07:57 AM on 11/04/2011

No surprise that Barney Frank wants to keep bailing them out.

[Siebenstein]

06:08 AM on 11/04/2011

They need to bailout homeowners w/o getting more money from the same people.

The casino continues.

[ReaItors Are Liars]

07:32 AM on 11/04/2011

The Problem: Grossy Inflated Housing Prices

The Solution: Dramatically Lower Housing Prices

The Solution is coming to every city town and state in America.

[Siebenstein]

06:06 AM on 11/04/2011

Where is my bailout??

[Siebenstein]

06:05 AM on 11/04/2011

This is fv.c.king ins@ne and needs to be stopped.

[Siebenstein]

06:03 AM on 11/04/2011

NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO !!

[shurtcircuit]

02:41 AM on 11/04/2011

This government made KING has my house and I have a lien against it and they can't sell. I am serving them with a five day notice to quit and then I am going to file an unlawful detainer against them. I despise this KING and the government who made it!

[Miss Muffett]

12:32 PM on 11/04/2011

Thank Bush W! Fannie and Freddy were not fully government subsidized until his administration.

[GloriaY]

12:48 AM on 11/04/2011

They could not be serious. Perhaps they should cut in half the salaries of the CEO and the rest of the staff and reduce the bonuses earmarked for their CEO and others. That alone may be able to cover most of their losses. Selling their corporate jets may also be another cost saving measure, but the gall in asking taxpayers for another bailout is unbelievable. They have got to be kidding.

[notwithmycash]

10:56 PM on 11/03/2011

$13M in bonus money last year to top execs and they already owe the taxpayers $140B. OWS supports a bail out?

[Miss Muffett]

12:32 PM on 11/04/2011

No. OWS does not support a bailout. It's exactly the kind of thing we're against.

[Gay-Curmudgeon]

10:40 PM on 11/03/2011

First of all, blaming Barney Frank for this situation is like blaming FDR for Pearl Harbor.

The role of Fannie Mae and Freddie Mac is critical to the support of the housing market which, as you should know, is a critical element to the U. S. economy. I saw a couple of comments below blaming the banks and Wall Street - - - a more accurate observation. Not only has the housing market been negatively impacted by the financial crisis, but just about every other sector of the financial markets has been impacted. I'm amused by the problems caused by the derrivatives (interest rate swaps and caps). The very purpose of these instruments was to insure against unexpected jumps in interest rates (which, of course, has been experienced in the past). Nobody ever expected rates to drop so quickly and drastically which places the financial weight of the hedge on the borrower.

I don't know if Fannie and Freddie have some sort of contractual entitlement to a blank check from the Treasury; however, if they do, then the terms need to be renegotiated. The derrivatives need to be renegotiated, and, of course, both Fannie and Freddie need to make plans for downsizing. This is what needs to happen before the U. S. Treasury writes any checks.

We still need Fannie and Freddie (as well as GNMA) but the structure of how they interact with the U. S. Govt and the financial markets needs to be seriously reexamined.

[Gay-Curmudgeon]

10:50 PM on 11/03/2011

Oh! One more thing. No profits = No bonuses. Period.

[GloriaY]

12:54 AM on 11/04/2011

Agreed. The former CEO of Fannie walked off with $900 million of taxpayer money in addition to his CEO salary, and in addition found a way to pay no tax.