Freddie Mac, the second-largest US mortgage finance company, said on Wednesday it would need an additional $10.6bn from the US Treasury Department to staunch losses on bad loans.
The company said it had lost $8bn, or $2.45 per share, in the first three months of 2010. The amount includes a $1.3bn dividend payment to the Treasury Department on senior preferred stock issued as part of a 2008 government-led bail-out. Along with larger rival Fannie Mae, Freddie is propping up the housing market by purchasing mortgages in the secondary market.
Since September 2008, both Fannie and Freddie have been operating under a legal framework known as conservatorship. Together they have eaten up $136bn in taxpayer money. The final bill could be much higher. The government has pledged to provide unlimited support to the companies over the next three years. The Congressional Budget Office estimates that taxpayer aid could approach $400bn over the next decade, making the bail-out of Fannie Mae and Freddie Mac far more costly than the rescue of big Wall Street banks.
In spite of government-led efforts to modify mortgages, foreclosures continue to mount. As a result, Freddie Mac said writedowns on uncollectible loans on single-family residences had totalled $2.8bn in the period, compared with $2.4bn in the fourth quarter of 2009. Delinquencies on those residences rose slightly to 4.13 per cent as of March 31, compared with 3.98 per cent as of December 31.
There are, however, small signs of improvement. Delinquency rates in March edged down compared with February, the first monthly decline in almost three years. Freddie Mac also lowered its provision for future losses to $5.4bn in the quarter, down from $7bn at the end of 2009, primarily because loans are going bad at a slower pace. Freddie Mac, which last year lost $9.9bn, or $3.14 a share, also said that a good portion of its losses had resulted from an accounting change that required it to bring $1.5bn in guaranteed mortgages on to its balance sheet.
“Though more needs to be done, we are seeing some signs of stabilisation in the housing market, including house prices and sales in some key geographic areas,” said Charles Haldeman, Freddie Mac chief executive.
Republicans have long argued that the government should play less of a role in the housing market, and on Wednesday they seized on financial reform legislation making its way through Congress to propose an amendment that would curtail support for Fannie and Freddie. Backed by Senators John McCain of Arizona, Richard Shelby of Alabama and Judd Gregg of New Hampshire, the amendment would end the conservatorship period for Fannie and Freddie within two years and require the companies to stand on their own or be wound down.