Freddie Mac reports 2Q loss, asks for $1.5B in aid

By Derek Kravitz

AP Economics Writer

WASHINGTON (AP) -- Government-controlled Freddie Mac requested $1.5 billion in additional federal aid Monday after posting a loss this spring. The mortgage giant also said Standard & Poor's decision to lower its debt rating will cause "major disruptions" in the home-lending market.

Freddie Mac said it lost $4.7 billion, or $1.44 cents per share, in the April-June quarter. It compares with a loss of $6 billion, or $1.85 per share, during the same quarter in 2010.

The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them. Since then, a government regulator has controlled their financial decisions.

Fannie and Freddie own or guarantee about half of all U.S. mortgages and nearly all new mortgage loans. The mortgage giants buy home loans from banks and other lenders, package them into bonds with a guarantee against default, and then sell them to investors around the world.

Taxpayers have spent roughly $150 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates the final cost for rescuing the firms could go as high as $259 billion.

Standard & Poor's cited the "direct reliance" on the U.S. government when it lowered Freddie and Fannie's credit ratings on Monday, from AAA to AA+. That reflected the same downgrade S&P made of long-term U.S. government debt last Friday.

Freddie Mac said in a filing to the Securities and Exchange Commission that a lower credit rating will reduce the supply of mortgages it could purchase. That would adversely affect home prices and likely lead to additional home-loan defaults on loans it guarantees.

Analysts were skeptical Monday about how much, if at all, the downgrade would affect homeowners and potential buyers.

"It's likely that once the storm passes, you'll get an increase in mortgage rates because of this, but it won't be significant. Housing is already depressed," said Anika Khan, a housing economist at Wells Fargo.

Freddie Mac paid $1.6 billion in dividends to the Treasury Department in the April-June quarter.

Washington-based Fannie Mae said last Friday that its second-quarter loss widened to nearly $5.2 billion. It continues to seek loan modifications to reduce defaults. That compares with a loss of $3.13 billion a year earlier.

Pressure has been building for the government to do away with Fannie and Freddie and reduce taxpayers' exposure to risk.

The Treasury Department rolled out a plan in February to slowly dissolve Fannie and Freddie, although that process could take years. Abolishing Fannie and Freddie would transform how homes are bought and redefine who can afford them.

Published: Wed, Aug 10, 2011

Comments

  1. No comments
Sign in to post a comment »