Government-sponsored home mortgage finance company Freddie Mac (FRE), Friday posted a narrower loss for the third quarter, helped by higher net interest income, and investment gains. The company said it had successfully avoided the need of additional funding from the Treasury for the second straight quarter, as the value of its securities increased. Looking ahead, the company expects to request additional funds from Treasury due to the prolonged deterioration of market conditions. The company also cautioned that the recovery of housing sector may be impeded by high unemployment, excess inventory and rising foreclosures.
The McLean, Virginia-based company reported a net loss of $5.0 billion for the third quarter, compared to a loss of $25.3 billion in the prior year quarter.
The company paid out a dividend of $1.3 billion on its senior preferred stock to the U.S. Department of the Treasury.
After the dividend pay out, Freddie Mac posted a net loss attributable to common stockholders of $6.3 billion, or $1.94 per share, compared to a loss of $25.3 billion or $19.44 per share in the previous year quarter.
Third quarter total revenues were $3.38 billion, compared to negative revenues of $9.56 billion in the same quarter last year.
For the second quarter of 2009, the company reported a loss attributable to the common shareholders of $374 million or $0.11 per share on revenues of $7.47 billion.
Net interest income for the recent quarter, on a full taxable-equivalent basis, surged to $4.56 billion from $1.94 billion a year earlier, lower short-term and long-term funding costs. Non-interest loss narrowed to $1.08 billion from $11.4 billion in the year-ago quarter.
Provision for credit losses for the third quarter rose 33% to $7.58 billion from $5.70 billion in the year-ago quarter.
Total gains on investments totaled $1.42 billion, compared to losses of $9.75 billion in the previous year quarter.
Total expenses for the third quarter increased 10% to $8.54 billion from $7.77 billion in the prior year quarter. Credit-related expenses rose 24% to $7.48 billion from $6.04 billion a year ago.
During the quarter, the company recognized $1.2 billion of net impairment of available-for-sale securities.
Freddie Mac had positive net worth of $10.4 billion at September 30, reflecting a gain of $8.5 billion in accumulated other comprehensive income, due to improved values on the company's available-for-sale securities.
As a result of the positive net worth, no additional funding was required from the U.S. Department of the Treasury under the terms of the senior preferred stock purchase agreement for the third quarter.
The aggregate liquidation preference of the company's senior preferred stock was $51.7 billion as of September 30, 2009.
The amount remaining under Treasury's $200 billion funding commitment as of September 30, 2009 was $149.3 billion, which does not include the $1 billion of senior preferred stock issued to Treasury as initial consideration for its funding commitment.
During the third quarter, Freddie Mac supported the Obama Administration's Making Home Affordable program, by enabling more than 78,000 struggling borrowers to accept offers to modify their loans under the Home Affordable Modification program and approximately 69,000 borrowers to lower their payments under the Freddie Mac Relief Refinance Mortgage.
"During this critical time for homeowners and the market, we continued to support the recovery of the housing market by providing a stable source of mortgage funding and helping people keep their homes," said Freddie Mac chief executive officer, Charles Haldeman Jr.
The company helped approximately 26,000 additional borrowers stay in their homes or sell their properties through its long-standing, traditional foreclosure prevention programs.
Also in the quarter, Freddie Mac provided liquidity to the mortgage market by purchasing or guaranteeing $125 billion in mortgage loans and mortgage-related securities, including $91 billion in single-family refinance volume.
For the nine-month period of 2009, Freddie Mac posted a net loss attributable to common stockholders of $16.91 billion or $5.20 per share, compared to a loss of $26.78 billion or $30.90 per share in the previous year period.
Net interest income, on a fully taxable-equivalent basis, surged to $12.87 billion from $4.48 billion a year ago. Non-interest loss narrowed to $955 million from $10.73 billion in the prior year period.
During the fourth quarter of 2009, Freddie Mac expects its provision for credit losses to remain high.
Looking ahead, the company said it expects factors like high unemployment, excess inventory and rising foreclosures to continue to impede a full recovery of the housing sector for some time and put further downward pressure on house prices.
Haldeman said, "We expect to request additional funds from Treasury as this prolonged deterioration of market conditions continues to negatively impact our financial results."
The other government-sponsored home mortgage finance firm, Fannie Mae (FNM), reported a heavy loss for the third quarter on higher credit related expenses, impairments and fair value losses. Fannie Mae also said it has applied for additional $15.0 billion aid from the federal government and is dependent on the continued support of Treasury for operating its business.
Freddie Mac closed Friday's regular trading session at $1.23, down 2 cents or 1.60%, on a volume of 16.33 million shares. However, in after-hours, the shares gained 2 cents or 1.63%.
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