WASHINGTON (AP) -- Freddie Mac is asking for an initial
injection of $13.8 billion in government aid after posting a massive
quarterly loss Friday.
The mortgage finance company is making the
first request to tap the $200 billion promised by the Treasury
Department to keep it and sibling company Fannie Mae afloat after the
two were seized by federal regulators in September. Freddie Mac said it
expects to receive the money by Nov. 29.
The McLean, Va.-based company posted a loss of $25.3 billion, or
$19.44 per share, for the third quarter. The results compare with a
loss of $1.2 billion, or $2.07 a share, in the year-ago period.
Analysts were divided about whether Fannie and Freddie’s losses
would ultimately exceed the government’s $200 billion pledge. And that
may partly depend on the extent to which Fannie and Freddie are used by
the government as a tool to ease the foreclosure crisis.
"There is no way that $200 billion will be sufficient, especially as
these companies are called on to, frankly, take losses … for the good
of society," said Josh Rosner, managing director of research firm
Graham, Fisher & Co.
Others say it’s unlikely that losses will soar so high. "I find it
difficult to be believe that it will get that far," said Credit Suisse
interest rate strategist Ira Jersey.
Ever since the government takeover, Fannie Mae and Freddie Mac’s
debt has suffered from a lack of confidence among international bond
investors. They are concerned about whether or not the U.S. government
firmly stands behind the companies’ debt.
Once the government actually injects money, that could help resolve
that uncertainty, said Alex Pollock, a fellow at the American
Enterprise Institute in Washington.
"It will be a demonstration to the international bond buyers of the
government’s true commitment to supporting these companies," Pollock
said.
Fannie and Freddie own or guarantee about half of U.S. mortgage
loans. If the companies can pay a reduced premium for their debt sales,
that could translate into lower mortgage rates for U.S. consumers.
Freddie Mac’s third quarter loss was mainly due to a $14.3 billion
charge to reduce the value of tax assets, but also was driven by $9.1
billion writedown on mortgage securities, and $6 billion in credit
losses from soaring mortgage delinquency rates and foreclosures.
Freddie Mac said that rising unemployment rates, tightening credit
and deteriorating economic conditions "contributed to a substantial
increase in the number of delinquent loans," including prime loans made
to borrowers with strong credit.
"Continuing home price declines and growing unemployment are now
affecting behavior by a broader segment of mortgage borrowers," the
company said in a Securities and Exchange Commission filing.
Freddie Mac’s overall delinquency rate rose to 1.22 percent, from
0.9 percent at the end of June, and 0.5 percent a year earlier. The
number of foreclosed properties that Freddie Mac holds rose to 28,000,
from 22,000 in June.
Freddie Mac also disclosed a dispute with JPMorgan Chase & Co.,
which purchased failed thrift Washington Mutual in late September.
JPMorgan has refused to take back bad loans made by Washington Mutual,
Freddie Mac said in the SEC filing. Both Fannie and Freddie reserve the
right to return loans that they discover to be fraudulent.
On Monday, Fannie Mae posted $29 billion loss in the third quarter
as it took a massive tax-related charge. Fannie Mae said it may have to
tap the government’s for help in the coming months.
Both Fannie and Freddie have changed their accounting for their
deferred-tax assets, which can emerge from operating losses, and can be
used to reduce future tax expenses. Companies must be able to show they
will be profitable if they intend to use the tax assets for earnings in
later periods.
The companies’ new chief executives, Freddie Mac’s David Moffett and
Fannie Mae’s Herbert Allison, were scheduled to testify on Capitol Hill
next week, but that hearing was rescheduled until Dec. 9. The House
Oversight and Government Reform Committee is examining the causes of
the government takeover.
Both companies have been asked to turn over a long list of documents
and e-mail messages concerning the risks the companies took in their
mortgage investments, accounting, and compensation for the companies’
former CEOs.
