Freddie Mac Swings to Loss

The government-controlled company said Tuesday the July-through-September loss mainly reflected accounting measures, while its business was strong and continued to improve.

For the first time in four years, Freddie Mac experienced a quarterly loss.

Freddie Mac, along with its sibling Fannie Mae (OTCBB: FNMA), guarantee almost half of all of the mortgages in the United States, with about $5 trillion guaranteed.

In its third quarter, the firm posted a loss of US$475 million, compared to a profit of US$2.08bn in the same period previous year. The dividends paid into Treasury by Freddie Mac remained unchanged at 96 billion dollars, which is about 25 billion dollars more than the 71 billion the Enterprise received in a taxpayer-funded bailout in 2008.

In a statement, Federal Housing Finance Agency Director Mel Watt said that Freddie and Fannie Mae may periodically have to draw on the Treasury as they experience losses. "The resulting difference between GAAP reporting and the actual underlying economics, which has created significant GAAP income volatility in our quarterly financial statements, reduced the after tax earnings in the quarter by an estimated $1.5 billion as interest rates declined significantly" said Donald H. Layton. The gradual recovery of the housing market has made Freddie Mac and Fannies Mae once again profitable. 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 a few mortgage loans and...

The two companies don't directly make loans to borrowers. The two buy mortgages from different lenders, put them in packages as bonds, guarantee them against any default and then sell them to different investors. No work on the proposal has been done this year in the current Congress.

The drop in Freddie's income was largely due to derivatives losses, which totaled $4.2 billion.