--Freddie Mac posted $3.02 billion profit
--Fifth time since 2008 it has not requested additional government aid
--Company expects repurchase demands to mortgage sellers to increase
Freddie Mac (FMCC) swung to a $3.02 billion second-quarter profit, as
rising home prices helped minimize the cash it set aside to cover
future credit losses and alleviated the need to seek additional
government funding.
The most-recent quarter marks the fifth time since 2008 that the
government-controlled company didn't request more aid to stay solvent,
and it was still able to pay a $1.8 billion dividend to the U.S.
Treasury Department.
Similarly, sister company Fanny Mae (FNMA) did not seek additional
government aid in the first quarter, when it posted a $2.7 billion
profit and paid back $2.8 billion in dividends.
Freddie Mac and Fannie Mae don't lend to consumers; rather, they buy
mortgages from banks and securitize them for purchase by investors,
generating additional liquidity for the housing market.
Both companies have repeatedly relied on government assistance to
sustain their operations since being put into conservatorship in 2008,
though they have recently shown improvements in their operations as
the housing market shows signs of recovery.
To date, Freddie Mac has requested $71.4 billion in government aid and
paid back more than $20 billion in dividends, including those in its
most recent announcement. Fannie Mae has received $116.2 billion in
support and paid $22.6 billion in dividends.
Freddie Mac's second-quarter profit compared with a $2.14 billion loss
a year earlier. The improved performance was largely driven by the
smaller provision for credit losses and a reduction in derivative
losses, which the company attributed to gains related to declining
interest rates.
Its provision for credit losses fell to $155 million, from $2.53
billion a year earlier and $1.83 billion in the first quarter, as
delinquency rates fell and national home prices increased. The company
said the rate of single-family loans deemed seriously delinquent was
3.45% in the quarter, down from 3.51% in the first quarter.
Freddie Mac also recorded $882 million in derivative losses, down from
$3.81 billion a year earlier.
The company has also made more requests this year to lenders to buy
back loans that failed to meet Freddie Mac's underwriting standards.
Those so-called repurchase demands totaled $2.91 billion as of June
30, up from $2.72 billion at the end of 2011. The figures are based on
the unpaid principal balance of loans subject to such requests.
Freddie Mac said in its Form 10-Q filed with the Securities and
Exchange Commission Tuesday that it expects its repurchase requests to
continue to increase due to changes it made this year in how it
samples loans to determine whether mortgage sellers are meeting its
requirements.
That could lead to higher costs for banks, which have recently said
they are setting aside more money to pay for repurchase demands
received from Freddie Mac and Fannie Mae.
Freddie Mac's improvement comes as the government-sponsored
enterprises and their regulator, the Federal Housing Finance Agency,
have been trying to encourage stability among the companies' executive
leadership ranks amid continuing employee turnover.
In May, Freddie Mac announced the appointment of former E*Trade
Financial Corp. (ETFC) Chief Executive Donald Layton as its new CEO.
That move was followed in June by Fannie Mae, which appointed its
general counsel, Timothy Mayopoulos, as its new CEO.
The previous CEOs of both companies had announced plans to leave the jobs.
The companies also continue to be mired in debate over whether they
are doing enough to help push for a housing-market recovery.
The FHFA last week blocked Freddie Mac and Fannie Mae from allowing
cuts to loan balances, despite pressure from the Treasury Department.
The regulator said the savings from such a move weren't enough to
offset potential costs.
Freddie Mac said Tuesday it has helped 5.9 million borrowers refinance
or avoid foreclosure since 2009 by purchasing refinanced mortgages and
through other efforts.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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(END) Dow Jones Newswires
August 07, 2012 09:45 ET (13:45 GMT)
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