(Adds background, expected home price decline)
By Corbett B. Daly and Al Yoon
WASHINGTON/NEW YORK May 5 Freddie Mac FRE.N,
the second-largest provider of U.S. residential mortgage funds,
on Wednesday said it lost $8.0 billion in the first quarter and
warned that it would continue to need government funds because
the housing market remains fragile.
The loss was $6.7 billion before a $1.3 billion dividend
payment on senior preferred stock owned by the U.S. Treasury.
Freddie Mac has been struggling to contain losses sustained
from its massive exposure to the U.S. housing market, which has
suffered its worst downturn since the 1930s.
Fearing that losses would harm Freddie Mac's ability to
support housing, the government put the company in
conservatorship in September 2008 and late last year pledged
unlimited financial backing.
Chief Executive Charles Haldeman said the company is
focused on strengthening its underwriting standards and
improving credit quality.
"Though more needs to be done, we are seeing some signs of
stabilization in the housing market, including house prices and
sales in some key geographic areas," Haldeman said in a
"But as we have noted for many months now, housing in
America remains fragile with historically high delinquency and
foreclosure levels, and high unemployment among the key risks,"
Freddie Mac, in a regulatory filing, predicted that U.S.
home prices would fall further over the "near term" before
there would be any sustained recovery in housing. It said it
expects "a significant increase in distressed sales."
The loss of the federal homebuyer tax credit last month, as
well as expectations of rising interest rates and high
unemployment, will also sap home prices, Freddie said.
It said it expects to continue to rely on Uncle Sam, in
part because of changes to accounting rules adopted in 2010.
"The size and timing of such draws will be determined by a
variety of factors that could adversely affect the company's
net worth," the firm said.
Since late 2008, the Treasury has purchased about $62.3
billion in Freddie Mac senior preferred stock, which is costing
about $6.2 billion a year in dividends.
The cost of the dividends alone exceeds what Freddie has
earned in most years and will likely complicate efforts by
Congress to overhaul the shareholder-owned, government-backed
business model undone by the financial crisis.
Fannie Mae, the other, larger government-controlled
mortgage finance company, is in a similar position.
The Obama administration earlier this month began the
process of overhauling the U.S. housing finance system, asking
for public comment on what should be done.
Treasury Secretary Timothy Geithner has said he does not
expect any substantive changes to the system until next year at
Representative Scott Garrett of New Jersey, a consistent
critic of both Fannie Mae and Freddie Mac, said the latest
figures demonstrate the need to address their future as
Congress considers sweeping changes to the U.S. financial
"Taxpayers are continually losing money on these failed
enterprises, and at some point, we must say enough is enough,"
(Reporting Corbett B. Daly and Al Yoon; Editing by Dan