Freddie Mac's loss narrows, eschews federal aid

[August 08, 2009]  WASHINGTON (AP) -- Freddie Mac escaped the second fiscal quarter without asking the government for any new financial aid, but still expects to need more federal help in the future.

The government-controlled mortgage finance company on Friday posted a quarterly loss of $374 million, or 11 cents a share, including $1.1 billion in dividends paid to the government.

Excluding those payments, the company would have earned $768 million. In the year-ago period, Freddie lost $1.05 billion, or $1.63 a share.

The McLean, Va.-based company was able to maintain a positive net worth of $8.2 billion in the quarter ended June 30. As a result, it did not need to seek funding from the Treasury Department, which has provided Freddie Mac with $51 billion since the takeover last September.

The government has pledged up to $400 billion in aid for Freddie Mac and its sibling Fannie Mae. The two companies play a vital role in the mortgage market by purchasing loans from banks and selling them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.4 trillion. That's about half of all U.S home mortgages.

"While we are seeing some early signs pointing to a housing recovery - including a modest uptick in house prices in some markets - our outlook remains cautious due to rising foreclosures, growing unemployment, tight lending standards and buyers' reluctance to re-enter the market," John Koskinen, Freddie Mac's interim CEO, said in a statement.

Revenue for the quarter totaled $7.5 billion, compared with $1.6 billion a year earlier.

Reeling from losses from the housing bust, Fannie Mae and Freddie Mac have tapped a combined $96 billion in taxpayer aid, including nearly $11 billion requested by Fannie Mae this week. That's surpassed only by insurer American International Group Inc., which has received $182.5 billion in financial support from the government.

And it's unclear how much Fannie and Freddie will repay taxpayers.

"I don't see at this point how they could pay it all back," said James Lockhart, director of the agency that regulates the two companies.

Despite recent signs of stabilization in the housing market, loans backed by Fannie and Freddie continue to fall into trouble. At Freddie Mac, 2.8 percent of borrowers were at least three months behind on their mortgages, triple last year's levels. The company owned about 35,000 foreclosed properties at the end of June, up from about 29,000 in March.

After nearly a year under federal control, the future of the two companies remains unclear. The Obama administration is expected to unveil its plans until early next year.

Options being considered include keeping the companies private, winding down their operations, merging them into a federal agency or separating out their bad mortgage assets into a new company backed by the government.

[Associated Press; By ALAN ZIBEL]

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