February 25, 2010 in Business

Freddie Mac lost almost $26 billion

Federal taxpayers covering mortgage company’s losses
Alan Zibel Associated Press
 

WASHINGTON – Freddie Mac lost almost $26 billion last year, ominous news for taxpayers who are footing the bill to rescue the mortgage finance company and its sibling Fannie Mae.

Freddie Mac, which has lost a total of almost $80 billion since the housing crisis started in 2007, is bracing for more pain. The McLean, Va.-based company said a record 4 percent of its borrowers are at least three months behind on their payments and facing foreclosure.

Its chief executive, Charles Haldeman, warned Wednesday of a “potential large wave of foreclosures” still to come.

This is a major problem for the federal government, which seized control of Freddie and Fannie in September 2008. The two companies have already siphoned $111 billion from the government to stay afloat. That number is expected to hit $188 billion by fall 2011.

And while Freddie Mac didn’t ask for any more bailout money last quarter, the company said it will likely need more financial aid and might never repay it.

“We now have unlimited taxpayer exposure to the bailout of Fannie and Freddie, a bailout nation where the big get bigger, the small get smaller and the taxpayer gets poorer,” Rep. Jeb Hensarling, R-Texas, said at a House hearing Wednesday.

Fannie and Freddie dominate the mortgage market, backing about 70 percent of the loans made last year. The two companies purchase mortgages from lenders and package them into securities. Investors are willing to buy the securities because they are effectively guaranteed by the U.S. government. That puts American taxpayers at risk.

But the fragile housing sector is so dependent on the government that officials say they won’t have a detailed exit strategy until next year. Underscoring the market’s weakness, the Commerce Department said Wednesday that sales of new homes unexpectedly plunged 11 percent from December to January to the lowest level on record.

Freddie Mac said Wednesday it lost $25.7 billion, or $7.89 a share, for all of 2009. Of those losses, $4.1 billion went to dividends paid to the Treasury Department, which holds a nearly 80 percent stake in the company.

In the final three months of last year, Freddie Mac posted a loss of $7.8 billion, or $2.39 a share. The results, however, were a marked improvement over the fourth quarter 2008 when Freddie lost $23.9 billion, or $7.37 a share.

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