Loan Modification

Freddie Mac Up Next for Additional Aid

By Frank Shump

When it comes to Freddie Mac and Fannie Mae, good news is hard to come by. If you?ve been following the blog, you probably already know that Fannie Mae reported a rather large loss in the first quarter, but what about Freddie? Unfortunately things aren?t much better there, either, although arguably not quite as bad with the firm reporting a loss of $9.9 billion in the first quarter of 2009.

The reason for another huge loss stems as you might expect from ?credit-related expenses.? These expenses stem mostly from provisions for loan losses, which continue to increase. Declining home prices and a stubbornly weak economy have continued to pound the firm?s results. Of course despite these difficulties, the firm has also tried to play a role in an economic recovery by injecting $148 billion into the market. According to the interim CEO John Koskinen, the mortgage giant also prevented about 40,000 homeowners from heading into foreclosure. That?s a comforting sentiment, until you look at the fact that according to a recent report from RealtyTrac, there were about 342,038 foreclosure filings in April alone.

As with Fannie, Freddie Mac will need additional money from the Treasury in order to continue operating. Once again the losses drive the company?s net worth back into negative territory. In total the director of the Federal Housing Finance Agency asked for another $6.1 billion to bring the cover the firm?s ?net worth deficit.?

If you?re wondering if there?s a light at the end of the tunnel, the Obama administration recently clarified what it expects the total tab to be for the government takeover of both Fannie Mae and Freddie Mac: A cool $171.1 billion from taxpayers. So far, the firms have received about $78.8 billion after they were nabbed in September because their failure could have cause irreparable damage to the financial system. The administration is also considering a number of paths for the mortgage giants, with the budget documents outlining returning them to their status as government-charted public companies with private management. Alternatively, they could be gradually winded down and sold off piece meal. They?re also considering turning the firms into a federal agency or public utility. I wonder how many billions of dollars in losses the government and taxpayers alike will tolerate.

Full post as published by Blown Mortgage on May 13, 2009 (boomark / email).