Freddie Mac Seeks Bailout, Despite Increased Profits


NEW YORK (MainStreet) — Despite news from Freddie Mac (Stock Quote: FRE) this week that suggests a return to profitability for the federally backed mortgage lender, its future remains in question.

First, the government-sponsored enterprise (GSE) announced, via its Primary Mortgage Market Survey, that national 30-year fixed-rate mortgages averaged under 5% for the week ending Feb. 25. The average of 4.95% is down from 5.0% last week. (The BankingMyWay Weekly Mortgage Rate tracker currently has the average interest rate on a 30-year loan at 5.06%.)

Rising inflation and a drop in home sales account for the loss, says Frank Nothaft, chief economist at Freddie Mac. "Fixed mortgage rates eased again this holiday week amid mixed inflation data reports,” he said. “Although the core consumer price index for January rose slightly above the market consensus, house prices fell 4.1% in the fourth quarter of 2010 compared to the same period in 2009, according to the S&P/Case-Shiller National Index. In addition, the level of the index was the lowest since the fourth quarter of 2002.”

In short, “low mortgage rates and home prices are sustaining affordability in the housing market,” as Nothaft notes.

Freddie Mac also reported a surprisingly strong set of performance numbers for the fourth quarter of 2010: The mortgage titan posted earnings of $1.2 billion for the quarter. Still, the profit was short-lived as the company had to fork over $1.6 billion to the Treasury Department in the form of dividend payments.

With this in mind, Freddie Mac has already gone to the U.S. government to ask for $500 million more in taxpayer-funded aid.

With tts current net worth a meager $401 million as of Dec. 31, 2010, the $1.6 billion dividend payment that the company handed over to the government nearly wiped it out. Another big bailout from the taxpayers should alleviate that, Freddie says in its Q4 financial statement.

“The company had a net worth deficit of $401 million at Dec. 31, 2010 due to several contributing factors, including its $1.6 billion quarterly dividend payment to Treasury, which exceeded total comprehensive income for the fourth quarter,” Nothaft said. “To eliminate this deficit, Federal Housing Finance Agency (FHFA), as Conservator, will submit a $500 million draw request to Treasury.”

The Treasury Dept. appointed the FHFA as Freddie Mac’s conservator in September 2008, at the height of The Great Recession.

But even as Freddie Mac inches along on the path to growth, the White House has already floated plans to “wind down” Freddie and Fannie Mae (Stock Quote: FNM), and take a big step away from financing home mortgage loans.

That plan already has a lot of support in the Republican-controlled U.S. House of Representatives and some decent support in the Senate as well.

While Freddie may have found some firmer financial footing for now, advocates shouldn’t get too excited. If there’s a glue factory for mortgage lenders, Freddie is already high on its list of expected guests.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at

Show Comments

Back to Top