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People once thought guaranteeing conventional, thoroughly underwritten mortgages with near Treasury-level funding costs was a lucrative, low-risk business. Freddie Mac's forthcoming second-quarter results could provide a reminder why.
August 5
Freddie Mac posted a second-quarter loss as prior-year derivative gains were losses in the latest period for the mortgage financier, which said it would request another $1.8 billion in government aid.
The company's ongoing bottom-line woes come as delinquencies industrywide have stopped getting worse. In Freddie's portfolio, they fell in June from a month earlier after being flat in May and falling the prior two months, the first declines in three years.
For the quarter, its single-family delinquency rate was 3.96%, compared with 2.89% a year earlier and 4.13% in the first quarter.
Freddie posted a loss of $4.71 billion, compared with a prior-year profit of $302 million. Including preferred-dividend payments to the Treasury Department, the company's per-share loss widened to $1.85 from 26 cents. The company posted $3.84 billion worth of derivatives losses for the quarter, compared with gains of $2.36 billion a year earlier.
Credit-loss provisions were $5.03 billion, down from $5.67 billion a year earlier and $5.4 billion in the first quarter.
Last week, sister company Fannie Mae (FNMA) posted its smallest quarterly loss in three years amid signs the wave of souring loans that brought it down may be easing. Both companies were placed under conservatorship in 2008 to prevent potential implosions at the height of the credit crisis. Freddie has asked for more than $60 billion in federal aid, while Fannie's tap tops $85 billion.
Freddie and Fannie's shares began trading on the over-the-counter market in July after the company's federal regulator ordered them to delist from the New York Stock Exchange after the company's shares failed to meet listing standards.
