Freddie Mac Shows Loss for Q2, Needs $1.5B from Treasury
-By: Carrie Bay
Freddie Mac said Monday that it logged a $2.1 billion net loss for the second quarter reporting period.
The company has requested another $1.5 billion in taxpayer funding from Treasury, bringing the total amount of its capital draws to $66.2 billion since September 2009 when the government seized control of the mortgage financier.
Freddie Mac says the Treasury outlay is needed to cover a net worth deficit for the quarter of $1.5 billion. The GSE attributes much of the shortfall to the $1.6 billion quarterly dividend payment it made to Treasury under the conditions of its conservatorship.
The McLean, Virginia-based firm’s latest financial report represents a slide from the previous quarter, when Freddie posted a $676 million profit and needed no additional funding from Treasury.
The numbers, even written in red ink, improved when compared to this time last year, however. For the second quarter of 2010, Freddie Mac reported a $4.7 billion loss and requested $1.8 billion from Treasury.
The GSE explained in its earnings statement that the net loss experienced in the April-to-June period of this year primarily reflects the impact of declines in long-term interest rates on the fair value of derivatives.
The company also said while it continues to see modest improvement in single-family credit performance, credit losses and credit-related expenses remain elevated compounded by high unemployment and still-declining home prices.
Freddie Mac’s single-family serious delinquency rate was 3.50 percent at June 30, down from 3.63 percent at
March 31, and “remains substantially below industry benchmarks,” according to the GSE.
The company set aside a $2.5 billion provision for credit losses in the second quarter, compared to $2.0 billion for the first quarter.
The increase in the provision for credit losses in the second quarter was mostly driven by a small increase in the number of newly delinquent loans and a slowdown in the rate at which loans transition into serious delinquency within the company’s single-family portfolio population, Freddie Mac explained.
Freddie Mac helped nearly 54,000 struggling borrowers avoid foreclosure in the second quarter of 2011, with eight out of every 10 borrowers helped qualifying for a solution that allowed them to remain in their homes, the company said.
Of the single-family loan workouts completed in the second quarter, 31,049 were loan modifications; 7,981 were repayment plans; 3,709 consisted of forbearance agreements; and 11,038 were short sale or deed-in-lieu transactions.
“One of our biggest priorities has been implementing the Servicing Alignment Initiative, an essential and joint effort with Fannie Mae that will improve the industry’s ability to help borrowers facing foreclosures,” commented Charles Haldeman, Jr., Freddie Mac’s CEO.
Freddie Mac said it expects its servicers to begin implementing the new mandates of the Servicing Alignment Initiative during the second half of 2011.
The GSE acquired 24,799 REO properties through foreclosure over the April-to-June timeframe, adding to the 65,174 already on its books. REO dispositions, however, outpaced acquisitions for the quarter. Freddie sold 29,355 REOs during the three-month period.
The company ended the second quarter with an inventory of 60,618 foreclosed REOs (60,599 single-family homes and 19 multi-family properties). The carrying value of the GSE’s REO portfolio was $27 million, compared to $257 million for the first quarter of 2011.
Freddie Mac says the decrease in the cost associated with its REO operations was primarily driven by an improvement in both REO holding period write-downs and disposition losses as REO fair values stabilized during the second quarter.