WASHINGTON Freddie Mac FMCC.OB, the No. 2 provider of U.S. mortgage money, said on Thursday it will seek another $19 million in taxpayer aid after its quarterly profit failed to make up for a dividend payment to the government for its controlling stake.
The company has now drawn $72.3 billion from the U.S. Treasury since being seized by the government in 2008, and has returned $18.3 billion as the price for the taxpayer support.
For the first three months of the year, Freddie Mac reported net income of $577 million, down from $676 million in the year-ago quarter. The drop was mainly due to derivatives losses totaling $1.06 billion, up from $427 million a year earlier and $766 million in the previous three-month period.
The company, whose aid request was down from the $146 million it needed to stay afloat in the prior quarter, warned it was unlikely to generate enough profit to cover its dividend payments any time soon.
"Over time, the company's dividend obligation to Treasury will increasingly drive future draws," Freddie Mac said.
The company and its larger rival Fannie Mae FNMA.OB, which together own or guarantee about 60 percent of U.S. home loans, have been sustained by taxpayer support since September 2008, when they were placed in a government conservatorship as mounting mortgage losses threatened their solvency.
Fannie Mae, which has yet to report first-quarter results, has borrowed more than $116 billion from the government and paid almost $20 billion via dividends.
Charles Haldeman, the chief executive at Freddie Mac, said in a statement that the company and its federal regulator had focused more heavily in the first quarter on "shifting risk to private investors" and reducing the size of the government's role in the housing finance market.
ROBBING PETER TO PAY PETER
The current structure of their government conservatorship requires the two mortgage finance companies to pay a 10 percent dividend to the Treasury for the cash infusions that have kept them in business.
"It's just the taxpayers paying Fannie and Freddie so that Fannie and Freddie can pay the taxpayers," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.
Some analysts believe the dividend requirement should be lowered to help preserve the assets of the companies. But Vogel said any overhaul of the dividend structure should be taken together with a broader revamping of the housing finance system.
Republicans and Democrats on Capitol Hill agree that Fannie Mae and Freddie Mac should be wound down, but any action appears years away.
The government-controlled companies do not directly make loans to consumers. Rather, they buy and insure mortgages from banks, freeing up cash for more lending.
Freddie Mac said the credit quality of the loans it owns or guarantees improved in the first quarter. Provisions for credit losses fell to $1.83 billion from $2.58 billion in the fourth quarter and $1.99 billion in the period a year earlier as seriously delinquent loans performed better.
However, the company's rate of seriously delinquent loans remained at historically high levels, Freddie Mac said, due to continued weakness in home prices and extended foreclosures.
Freddie Mac said loans made during the boom and bust of the housing market from 2005 to 2008 accounted for a majority of its non-performing assets.
Housing prices are down more than 30 percent from their peak in 2006, and about 11 million Americans owe more on their mortgages than their homes are worth. Since 2010, high volumes of foreclosures have added to losses in housing wealth.
The Obama administration projects taxpayer losses on Fannie Mae and Freddie Mac will fall to $28 billion by 2022, but the federal regulator overseeing the two has said they might absorb as much as $311 billion in aid by the end of 2014 in a worst-case housing market scenario.
(Editing by Chizu Nomiyama, Jeffrey Benkoe and Dale Hudson)