Freddie Mac released its financial reports for the first quarter of 2010 showing a net loss of 6.7 billion and announced that its Conservator, the Federal Housing Finance Agency (FHFA), will be asking the Department of the Treasury for a draw of $10.6 billion under the Senior Preferred Stock Purchase Agreement.
This request, which is proforma as Treasury has already authorized nearly unlimited draws, will bring the total borrowed from the Treasury by Freddie to $61 billion. Freddie said it expects to request additional draws under the Purchase Agreement in future periods and the Congressional Budget Office estimates that the ultimate cost to taxpayers from bailing out Freddie Mac and Fannie Mae will be $389 billion through 2019.
The net loss attributable to common stockholders during the quarter was $8.0 billion or $2.45 per diluted common share. This reflects $1.3 billion in senior preferred stock dividends payable to Treasury. Freddie had reported a net loss of $6.5 billion or $2.39 per share for the fourth quarter of 2009.
The corporation's net worth deficit was $10.5 billion at the end of the quarter compared to positive net worth of $4.4 billion at December 31, 2009. This shift resulted from the losses and dividends outlined above but was also driven, Freddie said, by significant adverse impact of the adoption of new accounting standards related to transfers of financial assets and consolidation of variable interest entities (VIEs) effective at the beginning of the year. The change forced Freddie to move all non-owned mortgages they guarantee onto their books and resulted in a decrease in total equity of 11.7 billion.
Freddie also reported provision for credit losses of $5.4 billion, down from $7.0 billion for the fourth quarter of 2009; derivative losses of $4.7 billion due to the decline in long-term rates during the quarter; and net interest income of $4.1 billion. The last figure reflects an increase in the average balance of non-performing mortgage loans for which the company recognizes debt funding costs but not interest income.
The company continued to experience deterioration in its single-family credit guarantee portfolio during the quarter with the single family delinquency rate including Structured Transactions increasing from 3.98 percent in Quarter Four, 2009 to 4.13 percent. The increase was despite the positive impact of seasonal factors and a higher volume of loans completing modification or proceeding to foreclosure during the quarter. Single family net charge-offs increased to $2.8 billion from $2.4 billion, primarily due to an increase in foreclosure transfers.
Single-family non-performing assets, including real estate owned properties and delinquent loans underlying the company's issued PCs and Structured Securities, increased to $115 billion at March 31, 2010, compared to $103 billion at December 31, 2009.
Freddie said its continued support of the housing market during the quarter included approximately $97 billion in liquidity and increased efforts to prevent foreclosures. The corporation helped finance more than 390,000 single family homes and 50,000 units of rental housing; helped refinance 320,000 homes; and continued with its administration of the Home Affordable Modification Program. The company also assisted 71,000 homeowners to identify alternatives to foreclosure. Its efforts resulted in 44,076 loan modifications, 8,761 borrowers receiving repayment plans; implementation of 8,858 forbearance agreement and 9,619 homes sold prior to foreclosure.
Freddie Mac CEO Charles E. Haldeman, Jr. said that Freddie Mac's support of the housing market is vital but expressed concern about the future of the housing market. "Though more needs to be done," he said, "we are seeing some signs of stabilization in the housing market, including house prices and sales in some key geographic areas, "But as we have noted for many months now, housing in America remains fragile with historically high delinquency and foreclosure levels, and high unemployment among the key risks.
"Though we are encouraged by signs of modest stabilization in some trends on the credit side of our single-family business, given the many uncertainties in the economy, we remain cautious," Kari said. "Credit quality remains a major focus for the company, and we are pleased that new business being delivered to us is of notably high credit quality."
The company said it anticipates a further decline in home prices before the market begins a sustained recovery and sees four big risks over the next year;
- An increase in distress sales as lenders try to reduce the backlog of delinquent loans and owned real estate.
- Expiration of the homebuyers' tax credit.
- A probable increase in interest rates during the year, and
- The likelihood that unemployment rates will remain high.
The company also noted that, home prices aside, credit losses will probably remain "significantly above historical levels for the foreseeable future due to the substantial number of borrowers in our single-family guarantee portfolio that currently owe more on their mortgage than their home is worth in today's market."