Government sponsored entity Freddie Mac lost $6 billion in the third quarter of 2011, and has requested $6 billion from the U.S. Treasury to backstop its losses.
Fannie Mae and Freddie Mac were seized and put into government conservatorship in 2008 in order to prevent their insolvency. Since that time the Obama Administration has pledged unlimited support for the GSEs.
Fannie and Freddie purchased mortgages from loan originators, package and securitize them, and sell the securities to investors. The resulting securities are guaranteed by Fannie and Freddie (and thus the taxpayers), and when mortgages default Fannie and Freddie are on the hook. The GSEs own/guarantee about half of all U.S. mortgages, worth about $5 trillion. Since 2008 the GSEs have drawn nearly $170 billion from the Treasury.
Freddie Mac CEO Charles Haldeman, Jr. commented:
“The weak labor market and fragile economy continue to weigh heavily on the single-family market, causing many potential buyers to sit on the sidelines or opt to rent despite high affordability and record low mortgage rates. While this put a damper on home buying, hundreds of thousands of borrowers were able to refinance into lower mortgage rates or shorter mortgage terms in the third quarter. In fact, the borrowers we helped to refinance will save an average of $2,500 in interest payments during the next year. Looking ahead, we expect the tepid recovery to continue to put downward pressure on house prices into early next year.
“Our financial performance in the third quarter was impacted by the weak housing market, as well as challenging financial market conditions. Freddie Mac was a stabilizing force in the mortgage market, ensuring the continuous flow of funds to lenders and borrowers and helping families avoid foreclosure. We also made further progress this year on becoming a stronger and more efficient company – adding high quality loans to our book and streamlining operations. Taken together, these efforts are maximizing the value of our assets for America’s taxpayers, and reinforcing the housing finance system.”
For better or worse, Fannie and Freddie are keeping the U.S. housing market afloat at this stage. What’s a few billion between friends?