$1.8 Billion Dividend Going to Treasury

by devteam May 3rd, 2012 | Share

Freddie Mac has reported net income for the first quarter of 2012 of $577 million and comprehensive income of $1.79 billion.  The financial report, released this morning, said that the corporation will request a draw from the U.S. Treasury of $19 million however this draw is necessary only because of its dividend obligation to the Treasury under which it will be paying back $1.81 billion.</p

The quarter’s net income is slightly lower than the $619 million reported for the fourth quarter of 2011 primarily because of higher derivative losses and lower net interest income which was partially offset by a decrease in the provision for credit losses related to single-family loans.  Comprehensive income was higher than the $1.51 billion in the fourth quarter because of improved fair values on the company’s available for sale (AFS) mortgage securities, partially offset by lower net income for the first quarter.</p

Including the $18 million request for the first quarter, Freddie Mac has received $72.3 billion in support from the U.S. Treasury since being placed in conservatorship in August 2008.  At the same time it has paid, under its Senior Preferred Stock Purchase Agreement, a total of 18.3 billion in dividends, resulting in net draws of $54.0 billion.</p

During the first quarter Fannie Mae provided $114 billion in liquidity to the housing market, financing the purchase or refinancing of 577,373 homes.  The corporation also financed 86,431 multifamily rental units and 34,716 single-family rental units.</p

Approximately 87 percent of the single-family purchase volume during the quarter was for refinancing homes for 416,000 borrowers.  The company’s report said it is too early to know what impact the changes made to the Home Affordable Refinance Program (HARP) in late 2011 will have on demand for the program which is designed to help underwater borrowers but since the original HARP was initiated in early 2009 Freddie Mac has purchased over $124 billion of those loans covering 565,000 borrowers.</p

During the most recent quarter the corporation was involved in 13,677 modifications of its loans, 10,575 repayment plans, 3,656 forbearance agreements, and 12,245 short sales or deeds-in-lieu of foreclosure for a total of 40,153 single family loan workouts.  Since the beginning of 2009 Freddie Mac has effectuated 656,300 such workouts.</p

The corporation states that the credit quality of the single-family loans the company has acquired since 2008 (with the exception of relief refinance mortgages) is significantly better than that of the loans acquired in the 2005-2008 period.  Loans during that earlier period had a weighted loan-to-value ratio (LTV) of 72 compared to 66 in the first quarter of 2012 and weighted average credit scores of 723 against the present scores of 763.</p

Since the beginning of 2008 the company has recorded a provision for credit losses of $75 billion associated with single family loans and recorded an additional $4.2 billion in losses on loans that were purchased from the company’s Participation Certificate trusts (net of recoveries.)  The majority of these losses were for loans originated in the 2005-2008 period.  Those loans are a shrinking part of the company’s portfolio, now representing 30 percent of the guarantee portfolio while the later loans account for 54 percent.</p

The single family delinquency rate continues to improve and is now 3.51 percent compared to 3.58 percent at the end of the previous quarter.  This delinquency rate is considerably lower than the national rate of 7.73 percent reported by the National Delinquency Survey at the end of the fourth quarter.  Multifamily delinquencies are at 0.23 percent, one basis point higher than in December.</p

Charles E. Haldeman, Jr., Freddie Mac’s Chief Executive Officer said of the quarterly results, “In the first quarter Freddie Mac sharpened its focus on building value for the industry, homeowners, and taxpayers by aligning its resources and internal business plans to meet the goals and objectives laid out in our new Conservatorship Scorecard and Strategic Plan.  Today we are executing against that plan, working with our regulator to build a new infrastructure for the housing finance system and establish a path for shifting risk to private investors.  These steps will ultimately reduce the size of the government’s role in the market, and complement the work we’ve already started to streamline the company.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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