Banking and Finance Law Daily Freddie Mac suffers $354 M loss in first quarter, no Treasury draw required
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Wednesday, May 4, 2016

Freddie Mac suffers $354 M loss in first quarter, no Treasury draw required

By Stephanie K. Mann, J.D.

Freddie Mac has reported a net loss of $354 million in its first quarter 2016 financial results, compared to net income of $2.2 billion for the fourth quarter of 2015. The company also reported a comprehensive loss of $200 million for the first quarter of 2016, compared to comprehensive income of $1.6 billion for the fourth quarter of 2015.

However, the report emphasized that the enterprise will not need to make an additional draw from the Treasury Department and that $98.2 billion has been returned to taxpayers through dividend payments to date. In addition, Freddie Mac provided approximately $87 billion in liquidity to the mortgage market, funding more than 313,000 single-family homes and approximately 209,000 multifamily rental units, while additionally helping 19,000 families avoid foreclosure, said the report.

Donald H. Layton, Chief Executive Officer of Freddie Mac, continues to be optimistic about the viability of Freddie Mac in a competitive market. “While the resulting flight-to-quality decrease in interest rates reduced our [generally accepted accounting principles] results this quarter, an impact which is non-economic in nature, the fundamentals of our business are very solid and continue to improve.”

Consolidated financial results. According to the Securities and Exchange Commission’s Form 10-Q, Freddie Mac’s decline in comprehensive income (loss) was primarily driven by two market-related items, including an estimated $.9 billion resulting from a larger decline in interest rates and $.6 billion resulting from widening spreads.

Industry’s concern. According to Sen. Mark Warner (D-Va), the report of Freddie Mac’s loss is “yet another reminder of why we need to reform our housing finance system now.” Warner continued saying, “it has been nearly eight years since the federal government bailed out Fannie Mae and Freddie Mac. Taxpayers ultimately injected $188 billion into the GSEs, and still remain exposed to the risks posed by these Too Big to Fail institutions.”

The Independent Community Bankers of America believe that while the enterprise did not have to draw from the Treasury Department, it is only a matter of time. The trade association therefore calls on Federal Housing Finance Agency Director Mel Watt and Treasury Secretary Jacob Law “to end this destructive sweep of the government-sponsored enterprises’ revenues. Further they should follow the Housing and Economic Recovery Act of 2008 and require both GSEs to develop and implement a plan to rebuild their capital buffers to prevent another bailout.”

The Community Home Lenders Association also continues to emphasize the need for GSEs to increase their capital buffer. A Feb. 17, 2016, letter to FHFA Director Watt warned about the possibility of quarterly losses by the GSEs and the risk that such a loss, combined with the GSE Sweep Agreement that takes quarterly profits away, could result in a Treasury advance. In the first quarter, Freddie Mac only narrowly avoided that outcome, highlighting the need for action, the organization said.

Companies: Community Home Lenders Association; Freddie Mac; Independent Community Bankers of America

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