Freddie Mac Swings to Loss
04 November 2015 - 1:40AM
Dow Jones News
Mortgage-finance company Freddie Mac said it swung to a loss in
its third quarter and won't send the U.S. Treasury a payment in
December.
The McLean, Va., company posted a loss of $475 million, compared
with a profit of $2.08 billion in the prior-year period. The latest
results were driven by losses on the derivatives that Freddie uses
to hedge its interest-rate risk, as well as changes in the value of
some mortgage loans and mortgage-related securities.
The company's derivatives gains and losses reflect an accounting
mismatch between how the derivatives and the assets the derivatives
hedge are valued, and the company has said it expects the net
effect to be neutral over time.
Derivative losses were $4.17 billion in the quarter, up from
$617 million a year earlier, amid declines in long-term interest
rates.
Freddie and mortgage-finance firm Fannie Mae were put into a
so-called conservatorship under government control during the 2008
financial crisis, eventually receiving nearly $188 billion in
support from the U.S. Treasury. However, for the last few years,
the companies have been immensely profitable, sending the
government more than they took.
Freddie received $71.3 billion in bailout support from
taxpayers, but the company has so far sent $96.5 billion to the
Treasury.
Because Freddie's net worth at the end of the quarter was below
the $1.8 billion capital reserve amount, it won't be required to
send a payment to the Treasury in December.
Under the current terms of its bailout, the companies must send
nearly all of their profits to the government in the form of
dividends and wind down their capital buffers over time. Some
private shareholders of Fannie and Freddie are challenging that
arrangement in court.
Meanwhile, while under government control, Fannie and Freddie
have seen halting efforts by lawmakers to replace them with a new
housing-finance system or to change certain aspects of their
operations.
With rising home prices, the company saw its serious delinquency
rate improve to 1.41%, down from 1.96% in the prior-year period and
its lowest level since October 2008.
Fannie and Feddie don't make loans. Instead they buy them from
lenders, wrap them into securities and provide guarantees to make
investors whole if the loans default.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 03, 2015 09:25 ET (14:25 GMT)
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