WASHINGTON – Freddie Mac reported a massive $4.2 billion gain on hedging as mortgage rates plunged to record lows almost dug it out of the red for the second quarter, even as dark clouds continue to hover over the secondary mortgage market giant.
Freddie reported a small net of $332 million, which was wiped out by $1.1 billion in dividends paid to the federal government on its preferred stock, creating a $768 million loss for the second quarter.
But Freddie also reported $5.2 billion in credit-related expenses as the housing market continued to deteriorate, and $2.2 billion of additional losses on mortgage-backed securities it holds.
Freddie’s report came a day after Fannie Mae said it lost another $15 billion in the second quarter and will need additional bailout funds from the Treasury Department, which took over the two mortgage giants.
Meantime, Treasury officials are engaged in broad discussions on the future of the two so-called government-sponsored enterprises, which dominate the secondary market for mortgages. One proposal is to combine the two entities. Another is to separate out the bad assets of each in a so-called bad bank. Still another is to sell off in whole or in parts to the private sector, in the same way that banks and credit unions acquire troubled institutions.
Fannie and Freddie were taken under conservatorship last September by the Treasury, which pledged up to $400 billion of aid to rescue the two. After announcing the latest losses Fannie said it will need another $11 billion of funds this quarter to keep operating. Freddie said it will not need any more bailout funds immediately. So far the Treasury has committed a total of $96 billion to the bailout.
