Freddie Mac says needs $1.8 billion from taxpayers

WASHINGTON Mon Aug 9, 2010 6:50pm EDT

The headquarters of mortgage lender Freddie Mac is seen in Mclean, Virginia, near Washington, in this September 8, 2008 file photo. REUTERS/Jason Reed/Files

The headquarters of mortgage lender Freddie Mac is seen in Mclean, Virginia, near Washington, in this September 8, 2008 file photo.

Credit: Reuters/Jason Reed/Files

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WASHINGTON (Reuters) - Mortgage finance giant Freddie Mac (FMCC.OB) on Monday said it would need another $1.8 billion in aid from taxpayers, bringing its total request since it was taken over by the government two years ago to more than $64 billion.

The second largest U.S. residential mortgage funds provider reported a loss of $6.0 billion, or $1.85 per diluted share, in the second quarter, including a $1.3 billion dividend payment to the government.

That compares with an $8.0 billion loss in the prior quarter and is the best three-month performance in a year. The firm lost $840 million in the second quarter of last year.

The company said losses stemmed primarily from loans purchased or guaranteed between 2005 and 2008.

The U.S. Treasury took control of Freddie Mac and its sister entity, Fannie Mae (FNMA.OB), at the height of the financial crisis in 2008 as loan losses mounted.

Since the government takeover, the two firms together have requested close to $150 billion from the government's unlimited credit line, scheduled to expire at the end of 2012.

The plan to put Freddie Mac and Fannie Mae into conservatorship was meant to be temporary.

But nearly two years later, Treasury Secretary Timothy Geithner has only just begun the process of figuring out how to overhaul the U.S. housing finance system.

Geithner has called for a conference on the future of housing finance to be held at the Treasury later this month.

The financial regulatory overhaul, which was signed into law by President Barack Obama last month, did not address reorganizing Freddie Mac and Fannie Mae, though it did restrict some mortgage lending practices that led to risky loans.

Freddie Mac said loans made last year and the first half of this year have significantly lower default rates than comparable loans made from 2006 through 2008. The company said about a third of its portfolio of single-family home loans consisted of those newer, higher quality loans.

Fannie Mae has also said stricter lending standards adopted last year are beginning to pay off and the firm's "new book" of business is the strongest in a decade.

Congress has scheduled hearings on the U.S. housing finance system in the coming months and any new system could take years to implement.

Despite the improved loan quality, "there is no going back to the Fannie-Freddie model (where shareholders profit in good times and taxpayers pay in bad times) and it does not matter how well their current book of business performs," said Howard Glaser, a consultant to mortgage lenders and a former housing official in the Clinton administration.

(Editing by Theodore d'Afflisio)

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Comments (53)
MrMark001 wrote:
Deeply flawed system. Deeply flawed remedies. Deeply flawed government turnes a blind eye to what it doesn’t care to see.

Your tax dollars at work as usual.

Thanks again, Washington. Once again you have underwhelmed us with your sheer genius.

Aug 09, 2010 11:48am EDT  --  Report as abuse
AnnieP1 wrote:
What’s another billion or so to this administration. And all the financial reforms, has any of it been directed toward Fan or Fred? I don’t think soooo.

Aug 09, 2010 11:49am EDT  --  Report as abuse
bkalb wrote:
It is time to get the crooks out of Fannie and Freddie starting with Frank, Dodd, and Waters. These people facilited a fraud on the American cirtizens. When these agencies were caught cooking the books, they refused to have them audited. They said it was racist to make Fannie and Freddie play by the rules. The managers of these agencies took huge bonuses due to the cooked books. They should all be held accountable.

Aug 09, 2010 11:50am EDT  --  Report as abuse
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