Residential mortgage credit guarantor Freddie Mac (FRE), Wednesday said its suffered a wider loss in the first quarter on continued weakness in the housing market and is pressing for an additional $10.6 billion in federal funding to stay afloat in the fragile credit environment. Freddie Mac's first quarter loss also reflects adoption of new accounting standards and losses in the investment and single family businesses, offset slightly by improvements in multifamily business.
"Though more needs to be done, we are seeing some signs of stabilization in the housing market, including house prices and sales in some key geographic areas," Freddie Mac Chief Executive Officer Charles Haldeman said. "But as we have noted for many months now, housing in America remains fragile with historically high delinquency and foreclosure levels, and high unemployment among the key risks."
The company's net loss attributable to common stockholders for the quarter was $7.98 billion or $2.45 per share, compared to a loss of $7.8 billion or $2.39 per share recorded in the same quarter a year ago. Net loss attributable to Freddie Mac was $6.69 billion, compared to prior year loss of $6.47 billion.
Freddie Mac's net worth deficit was $10.5 billion at March 31, 2010, compared to positive net worth of $4.4 billion at December 31, 2009. As a result, conservator, will now submit a request for $10.6 billion in additional funding to Treasury and expects to receive these funds by June 30, 2010.
Deficit was primarily driven by a significant net decrease in total equity of $11.7 billion due to the adverse impact of the consolidation of VIEs.
"Upon adoption of the new accounting standards we added $1.5 trillion of assets and liabilities to our balance sheet, and the cumulative effect of these changes was a one-time net decrease of $11.7 billion to total equity," Ross Kari chief financial officer commented.
The decline also reflects first quarter 2010 dividend payment of $1.3 billion to Treasury on the senior preferred stock, partially offset by a $4.8 billion decrease in unrealized losses recorded in AOCI.
Net interest income for the quarter improved to $4.13 billion from $3.86 billion in the year-earlier quarter and reflect a significant increase in the average balance of non-performing mortgage loans.
Non-interest loss was $4.85 billion, compared to a loss of $3.09 billion in the prior-year quarter, which included derivative losses of $4.7 billion due to the decline in long-term rates during the quarter.
Net interest yield was 68 basis points for the quarter, down significantly from 211 basis points from the fourth quarter of 2009, primarily as a result of the consolidation of VIEs.
Sequentially, in the fourth quarter, Freddie Mac reported a narrower loss on higher net interest income and lower net impairment of AFS securities. Net loss was $6.47 billion and revenues were $2.72 billion.
Provision for credit losses of $5.40 billion, down from $8.92 billion in the year-earlier quarter, primarily reflecting a slower rate of credit deterioration, as well as the impact of the consolidation of VIEs. Effective January 1, 2010, the provision on these non-performing loans is no longer necessary as the company places these loans on non-accrual status and does not recognize interest income.
"Throughout the first quarter of 2010, Freddie Mac continued to focus on strengthening underwriting and improving credit quality," said Haldeman, Jr. "At the same time, we helped more than 440,000 families own or rent a home, and more than 71,000 avoid foreclosure.
Based on the type of activities performed, Freddie Mac's operations consist of three reportable segments namely Investments, Single-family Guarantee and Multifamily.
Investments Segment Earnings reported a loss of $1.3 billion, primarily driven by Segment Earnings derivative losses of $2.7 billion, partially offset by $1.3 billion in Segment Earnings net interest income. Single-family Guarantee Segment also reported a loss of $5.6 billion, primarily driven by a $6.0 billion provision for credit losses.
Deterioration in the single-family credit guarantee portfolio continued with total single-family delinquency rate, including Structured Transactions, increasing to 4.13% at March 31, 2010, compared to 3.98% at December 31, 2009. Single-family net charge-offs increased to $2.8 billion from prior year's $2.4 billion.
Multifamily Segment recorded earnings of $221 million, primarily due to segment earnings net interest income of $238 million.
FRE closed Wednesday's regular trading at $1.43, down $0.03 or 2.05%, on a volume of 14.87 million shares. In after-hours, the stock further dropped $0.03 or 2.10%, to trade at $1.40. In the last 52-week period, the stock traded in a range of $0.53 - $2.50, with a three-month average volume of 13.51 million shares.
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