Wednesday, March 11, 2009

Freddie Reports $23.9 Billion Loss Article

By JAMES R. HAGERTY Freddie Mac, still suffering from the lax mortgage-lending practices of the housing boom, reported a loss of $23.9 billion for the fourth quarter and said it will need a $30.8 billion injection of capital from the U.S. Treasury. The government-backed provider of funding for home mortgages also said it expects its provisions for losses on mortgage defaults to remain high this year and that it is likely to require further funds from the Treasury. Freddie had a loss of $2.45 billion in the year-earlier quarter. For all of 2008, Freddie reported a loss of $50.1 billion, compared with a year-earlier loss of $3.1 billion. The losses over the past two years exceed the total of about $42 billion earned by the McLean, Va., company from 1971 through 2006. More No Shopping Around in Freddie RefiFreddie blamed the losses largely on rising mortgage defaults and declines in the value of derivatives used to hedge against interest-rate risks and other securities. Freddie's rival, Fannie Mae, last month reported a $25.2 billion loss for the fourth quarter. The Treasury has agreed to provide as much as $200 billion of capital apiece to Fannie and Freddie in exchange for senior preferred stock. The Treasury already provided $13.8 billion to Freddie late last year, and Fannie has asked for $15.2 billion of capital under the same program. The Federal Housing Finance Agency, which regulates Fannie and Freddie, seized control of their managements in September as it became clear that growing losses would wipe out their thin layers of capital. Federal officials now are running the companies as instruments of government policy, directing them to focus on preventing foreclosures even if that delays their ability to regain profitability. Freddie said its fourth quarter loss largely reflected a plunge of $11.8 billion in the market value of derivatives and a $4.7 billion drop in the value of its guarantee business, in which the company insures holders of mortgage-backed securities against losses from defaults. The value of the derivatives varies widely from quarter to quarter depending on fluctuations in interest rates. The latest capital injection from the Treasury will increase the government's holdings of senior preferred stock in Freddie to $45.6 billion. That capital is expensive: Freddie said it will pay annual dividends to the Treasury of about $4.6 billion, or 10% of the capital provided. Freddie's annual profit has exceeded that amount only twice since 1971. Freddie said in a securities filing that the Justice Department and the Securities and Exchange Commission continue to investigate the company's accounting, disclosures and corporate governance. The SEC has been interviewing Freddie employees and issuing subpoenas for documents. Freddie also named John Koskinen as interim chief executive officer as it searches for a longer-term successor for David Moffett. The company announced last week that Mr. Moffett would resign no later than Friday. Mr. Koskinen has served as chairman of Freddie since September. He will be succeeded in that post by Robert F. Glauber, a director of Freddie since 2006. Before joining Freddie's board, Mr. Koskinen was president of the U.S. Soccer Foundation for four years and deputy mayor and city administrator of Washington, D.C., from 2000 to 2003. Write to James R. Hagerty at

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