Freddie Asks $30.8 Billion More for Foreclosures
Freddie Mac, the mortgage finance company acquired by the federal government in 2008 to help avert foreclosures, has asked for an additional funding of $30.8 billion to boost its finances as it suffered its 6th consecutive quarterly loss.
Freddie Mac lost $7.37 per share, totaling $23.9 billion, in the fourth quarter. The losses were due to bad loans and write-down for derivatives used for interest rate hedging. In the same quarter of the previous year, Freddie lost $3.97 per share, totaling $2.5 billion.
For the whole year of 2008, Freddie lost $34.60 per share, totaling $50.1 billion. Almost all of the losses occurred in the last months, following Freddie’s takeover by the federal government in September. Its funds were used to buy or guarantee mortgages from lenders as they were battered by foreclosures.
Company executives explained that Freddie absorbed losses as it carried out its mission to help mitigate foreclosures, stabilize the mortgage market and rejuvenate the housing sector. They said they infused over $460 billion to provide liquidity to the mortgage industry which was drowning from continued foreclosures.
In July 2008, when then-Treasury Secretary Henry Paulson asked Congress for a $200-billion credit line for Freddie and Fannie, which it also acquired together with Freddie, Paulson promised lawmakers the credit lines would not be actually used. They will serve only as a deterrent to hostile speculators that will target the companies.
But because of the unending foreclosures that clobbered the financial industry, both Freddie and Fannie had to break that promise. Freddie had already used $14 billion of the credit line while Fannie had already asked for a $15 billion drawdown after it posted a loss of $59 billion for 2008.
Freddie’s executives soothed critics by explaining that the $30.8 billion funding will increase the value of taxpayers’ preferred stock position and will give them $4.6 billion in yearly dividends from the mortgage company. The executives said they have given to the Treasury the first taxpayers’ dividend in December.
The amount of $30.7 billion is the difference between Freddie Mac’s assets and liabilities as of December 2008. Freddie’s shares, which were priced as high as $67 in the middle of 2007 and as high as $34 in early 2008, remained at 42 cents this week as it continued to carry out its role in President Obama’s program to stop foreclosures.
By Cassiano Travareli