Freddie Mac to Tap Treasury’s Lifeline After Huge Quarterly Loss
Freddie Mac, the second-largest provider of U.S. home loan funding, has been forced to draw on a $100 billion Treasury Department lifeline, after reporting a $25.3 billion quarterly loss on Friday as the housing slump worsened.
The company attributed much of the record loss to a write down of tax-related assets, essentially conceding it will not return to profitability soon. Writing down the assets left the company with a negative net worth, in which liabilities exceed its assets, requiring it to tap the Treasury backstop.
Freddie Mac said after tentative signs that the housing market was stabilizing in the second quarter, conditions worsened "dramatically" during July through September.
The percentage decline in home prices was particularly large in California, Florida, Arizona and Nevada, where Freddie Mac has significant concentrations of mortgage loans," the company said in a securities filing. Freddie Mac said the rising unemployment rate was the main culprit for the worsening housing market.
Freddie Mac's loss equaled $19.44 per share, compared with a loss, before preferred dividend payments, of $1.24 billion, or $2.07 per share, a year earlier.
A $14.3 billion charge for deferred tax assets pushed the company's net worth to a negative $13.7 billion at the end of the third quarter, and shareholder equity to a negative $13.8 billion.
The government placed Freddie Macand its larger rival Fannie Maeunder conservatorship in September, pledging to inject capital as needed for the companies to operate and help stabilize the housing market.
The companies' regulator has submitted a request for the Treasury Department to provide $13.8 billion for Freddie Mac to erase the shareholder equity deficit.
The McLean, Virginia-based company said it expects to receive the money from Treasury by Nov. 29. Freddie Mac recorded $9.1 billion in write-downs on securities and $6.0 billion in other credit-related expenses.
Delinquencies on loans backing securities such as "Alt-A" loans and payment option adjustable-rate mortgages worsened far more than those on Freddie Mac-guaranteed debt, it said. Alt-A loans, which require little or no proof of income, caused 50 percent of Freddie Mac's credit losses in 2008.
Source: Source: CNBC | Published on November 14, 2008
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