Freddie Mac, a government-sponsored enterprise (GSE) chartered by Congress to stabilize the residential mortgage markets and expand homeownership and affordable rental housing, announced its financial results for the quarter ended March 31, 2010.
Traded on the NYSE, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market. In late May 2010, it reported a net loss of $6.7 billion for the first quarter of 2010, compared to a net loss of $6.5 billion for the fourth quarter of 2009.
In September 2008, Federal Housing Finance Agency put Fannie Mae and Freddie Mac under the conservatorship of the FHFA. The United States Department of the Treasury contracted to acquire $1 billion in Freddie Mac senior preferred stock, paying 10 percent per year. Even with the takeover, Freddie Mac's finances does not see improvement. It reported in May 2010, a net loss attributable to common stockholders of $8.0 billion, or $2.45 per diluted common share, for the first quarter.
In the first quarter, there was continued weakness in the housing market. Freddie Mac ended the first quarter with a net worth deficit of $10.5 billion, compared to positive net worth of $4.4 billion at December 31, 2009. There was a decrease in total equity of $11.7 billion due to the adverse impact of changes in accounting methods, and a $1.3 billion dividend payment to Treasury. The FHFA planned to submit a request on the company's behalf to the United States Department of the Treasury for a draw of $10.6 billion under a Senior Preferred Stock Purchase Agreement with Treasury. If granted, this request will bring the company's cumulative draw to $61.3 billion.
In the first quarter, Freddie Mac financed more than 390,000 single-family homes and 50,000 units of rental housing, refinanced $68 billion of single-family loans, and provided foreclosure alternatives for over 71,000 families. Freddie Mac's primary method of generating money is from charging a guarantee fee on loans that it purchases and securitizes into mortgage-backed security bonds. Freddie Mac keeps this fee in exchange for assuming the credit risk, meaning Freddie Mac guarantees the principal and interest on the underlying loan will be paid back regardless of whether the borrower actually repays.
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