The Wall Street Journal
Freddie Mac reported a narrower $2.5 billion third-quarter loss, the smallest shortfall in more than a year amid signs that mortgage delinquencies are slowing. But the company warned that delays in the foreclosure process could raise costs "significantly" and that losses also could rise amid a faltering housing recovery.
The third-quarter loss compared with a year-earlier net loss of $5.4 billion. While gains in the value of certain securities and derivatives left Freddie with a small cash surplus at the end of the quarter, it was forced to ask the Treasury for $100 million, in part to cover the cost of $1.6 billion in interest payments made to the government.
The government took over Freddie and its larger sibling, Fannie Mae, two years ago through a legal process known as conservatorship, and the taxpayer tab for the firms stands at about $134 billion.
While there were signs that mortgage delinquencies eased at Freddie during the third quarter, the company warned that any improvements could be offset by a worsening outlook for losses on homes that go into foreclosure.
Home prices fell 1.8% during the third quarter, according to the company's estimates, as sales declined following the expiration of the home-buyer tax credit.
"We believe that it will be a considerable time until the housing market has a sustained recovery," said Charles E. Haldeman Jr., Freddie's chief executive, in a statement.
Delays in the foreclosure process are the latest unwelcome development for the mortgage-finance company. Fannie and Freddie were forced to suspend the foreclosure process on homes in certain states this fall after paperwork errors prompted several mortgage servicers, including units of Bank of America Corp. and J.P. Morgan Chase & Co., to halt repossessions.
Tuesday, concerns over improper filings prompted the company to terminate its relationship with one of its top Florida foreclosure attorneys, and it had previously suspended foreclosures that had been referred to that firm.
In filings Wednesday, Freddie warned that expenses resulting from the foreclosure delays and the costs to correct paperwork errors could be "significant."
Freddie has taken back more homes as delinquencies have risen, and it owned nearly 75,000 homes at the end of September, up more than 20% over the previous three months. The costs of repairing and maintaining those properties totaled $840 million for the first nine months of the year, compared with $480 million during the year-ago period.
Freddie said it would seek to force banks to pay for costs of any delays that they were responsible for but warned that those efforts could be "difficult, expensive and time consuming." Freddie relies on the same big banks that sell mortgages to the company, its main source of income, to also handle servicing, or day-to-day loan management.
Three banks account for more than half of all loans sold to Freddie and also half of all loans serviced on behalf of Freddie: Bank of America, J.P. Morgan Chase and Wells Fargo & Co.
Fannie and Freddie already have locked horns with its lender-partners over demands to buy back soured loans that the mortgage companies say fell short of the firms' standards.
During the third quarter, Freddie collected $1.7 billion as a result of repurchase demands. Freddie had $5.6 billion in buyback requests during the quarter, and one-third of those demands had been outstanding for more than four months.
Even if Freddie is able to stem its losses, it is unlikely to ever pay down debt that has amassed as a result of the government's bailout. The company must pay the government a 10% annual dividend on its infusions from the Treasury, which totals $63 billion.
The cost of those interest payments exceeds the company's annual earnings from even its most profitable years. A new fee designed to help recoup the government's bailout of the companies is set to kick in next year.
Last month, a series of estimates by the firms' federal regulator, the Federal Housing Finance Agency, said that the taxpayer tab for the companies could run as high as $154 billion under the current home-price forecast. If the economy enters a double-dip recession and home prices fall more than 20%, the cost to taxpayers could reach $259 billion.
The third-quarter loss compared with a year-earlier net loss of $5.4 billion. While gains in the value of certain securities and derivatives left Freddie with a small cash surplus at the end of the quarter, it was forced to ask the Treasury for $100 million, in part to cover the cost of $1.6 billion in interest payments made to the government.
The government took over Freddie and its larger sibling, Fannie Mae, two years ago through a legal process known as conservatorship, and the taxpayer tab for the firms stands at about $134 billion.
While there were signs that mortgage delinquencies eased at Freddie during the third quarter, the company warned that any improvements could be offset by a worsening outlook for losses on homes that go into foreclosure.
Home prices fell 1.8% during the third quarter, according to the company's estimates, as sales declined following the expiration of the home-buyer tax credit.
"We believe that it will be a considerable time until the housing market has a sustained recovery," said Charles E. Haldeman Jr., Freddie's chief executive, in a statement.
Delays in the foreclosure process are the latest unwelcome development for the mortgage-finance company. Fannie and Freddie were forced to suspend the foreclosure process on homes in certain states this fall after paperwork errors prompted several mortgage servicers, including units of Bank of America Corp. and J.P. Morgan Chase & Co., to halt repossessions.
Tuesday, concerns over improper filings prompted the company to terminate its relationship with one of its top Florida foreclosure attorneys, and it had previously suspended foreclosures that had been referred to that firm.
In filings Wednesday, Freddie warned that expenses resulting from the foreclosure delays and the costs to correct paperwork errors could be "significant."
Freddie has taken back more homes as delinquencies have risen, and it owned nearly 75,000 homes at the end of September, up more than 20% over the previous three months. The costs of repairing and maintaining those properties totaled $840 million for the first nine months of the year, compared with $480 million during the year-ago period.
Freddie said it would seek to force banks to pay for costs of any delays that they were responsible for but warned that those efforts could be "difficult, expensive and time consuming." Freddie relies on the same big banks that sell mortgages to the company, its main source of income, to also handle servicing, or day-to-day loan management.
Three banks account for more than half of all loans sold to Freddie and also half of all loans serviced on behalf of Freddie: Bank of America, J.P. Morgan Chase and Wells Fargo & Co.
Fannie and Freddie already have locked horns with its lender-partners over demands to buy back soured loans that the mortgage companies say fell short of the firms' standards.
During the third quarter, Freddie collected $1.7 billion as a result of repurchase demands. Freddie had $5.6 billion in buyback requests during the quarter, and one-third of those demands had been outstanding for more than four months.
Even if Freddie is able to stem its losses, it is unlikely to ever pay down debt that has amassed as a result of the government's bailout. The company must pay the government a 10% annual dividend on its infusions from the Treasury, which totals $63 billion.
The cost of those interest payments exceeds the company's annual earnings from even its most profitable years. A new fee designed to help recoup the government's bailout of the companies is set to kick in next year.
Last month, a series of estimates by the firms' federal regulator, the Federal Housing Finance Agency, said that the taxpayer tab for the companies could run as high as $154 billion under the current home-price forecast. If the economy enters a double-dip recession and home prices fall more than 20%, the cost to taxpayers could reach $259 billion.
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