Posted on 03 Nov 2010
Increasing the government's tab for its rescue of the mortgage-finance company to $63.2 billion, Freddie Mac reported a third-quarter net loss of $2.5 billion and asked the U.S. Treasury to provide a $100 million infusion.
The reported third-quarter loss was the 12th in the last 13 quarters, compared with a year-earlier net loss of $5.4 billion.
The company reserved $3.7 billion for credit losses, down from a $5 billion provision taken during the second quarter amid signs that mortgage delinquencies have slowed. But that improvement was offset by a weaker economic outlook, which could cause Freddie to lose more money on sales of foreclosed properties.
The loss came during a quarter in which Freddie was forced to suspend the foreclosure process in certain states after paperwork errors that surfaced in September prompted several mortgage servicers, including units of Bank of America Corp. and J.P. Morgan Chase & Co., to halt repossessions.
"We believe that it will be a considerable time until the housing market has a sustained recovery," Charles E. Haldeman Jr., Freddie's chief executive, said in a statement.
Freddie Mac and its larger sibling, Fannie Mae, have sustained huge losses largely due to rising delinquencies on loans made as the housing boom turned to bust. The companies were taken over by the government two years ago through a legal process known as conservatorship, and taxpayers are on the hook for $135 billion that the U.S. Treasury has already committed.
The companies must pay the government a 10% dividend on the money they take from the Treasury. While the companies' losses have begun to slow, they are likely to continue borrowing money from the government in order to make those dividend payments.
During the third quarter, for example, Freddie Mac's quarterly loss was offset by a gain in the value of certain securities that gave the company a $1.4 billion cash surplus, before making its dividend payment. But after paying $1.6 billion in dividends to the government, the company was forced to ask the U.S. government for more money.
Last month, a series of estimates by the firms' federal regulator, the Federal Housing Finance Agency, said that the taxpayer tab for the companies could run as high as $154 billion under the current home-price forecast. If the economy enters a double-dip recession and home prices fall by more than 20%, the cost to taxpayers could reach $259 billion.
Either way, the government rescue of the mortga