Late yesterday afternoon, Freddie Mac announced a first quarter loss of $9.9 billion, its seventh straight quarterly loss, resulting in a net worth deficit of $6.0 billion (after taking into account a decrease in unrealized losses on available-for-sale securities). As a result, the Director of the Federal Housing Finance Agency, who serves as conservator for Freddie Mac, has submitted a request to Treasury on Freddie Mac’s behalf for $6.1 billion in funding under the terms of last year’s Senior Preferred Stock Purchase Agreement. Treasury's agreement was established when Freddie Mac was placed into conservatorship in September 2008, and Treasury's preferred stock commitment was increased as part of the Homeowner Affordability and Stability Plan from $100 billion to $200 billion. Freddie Mac previously drew down $30.8 billion on Treasury's commitment in March, and in $13.8 billion in November, bringing its total requested aid to date to $51.7 billion. Freddie Mac’s announcement also follows Fannie Mae’s Friday announcement of a $23.2 billion first quarter loss.
Freddie Mac stated that the first quarter loss was "driven primarily by $9.1 billion in credit-related expenses related to the continued severe economic conditions during the first quarter, including declines in home prices, further deterioration in labor markets, and a drop in consumer confidence to record lows, … [and] $7.1 billion in security impairments on available-for-sale securities primarily due to sustained deterioration in the performance of the collateral underlying the company’s non-agency mortgage-related securities, … partially offset by net mark-to-market gains of $3.8 billion on the company’s derivative portfolio, guarantee asset and trading securities mainly due to impacts of increases in long-term interest rates and spread tightening.” Interim Chief Executive John Koskinen cited “declining home prices and a weak economy” as an explanation for the poor results.
In its Form 10-Q filing with the Securities and Exchange Commission, Freddie Mac reported that it is “dependent upon the continued support of Treasury and FHFA in order to continue operating,” and that its ” ability to access funds from Treasury under the Purchase Agreement is critical” to its remaining solvent and “avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions.” The mortgage giant warned that “there is significant uncertainty as to whether or when” it will emerge from conservatorship.