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Freddie Loses $50B in 2008

McLean, Virginia-based mortgage financier ""Freddie Mac"":http://www.freddiemac.com released its ""2008 financial results"":http://www.freddiemac.com/news/archives/investors/2009/2008er-4q08.htmlxeInvRelEarn on Wednesday. For the full-year 2008, the GSE reported a net loss of $50.1 billion, or $34.60 per diluted common share. The staggering loss demonstrates the continuing downturn in the U.S. housing market when compared to the company's 2007 loss of $3.1 billion, or $5.37 per diluted common share.
During the fourth quarter of last year, representing a full three months that the GSE was under government control, Freddie Mac reported a net loss of $23.9 billion, or $7.37 per diluted common share. Those results constitute slightly less red ink compared to the quarter ended September 30, 2008, when the company reported a net loss of $25.3 billion, or $19.44 per diluted common share. The federal government seized both Freddie and its sister company Fannie Mae on September 7th of last year.
David Moffett, Freddie Mac's CEO until his ""resignation"":http://dsnews.comindex.php/home/news_story/2674 takes effect at the end of the week, said, ""Freddie Mac is working hard to serve our expanded mission in this historic crisis, by doing all we can to help stabilize the financial markets and hasten the recovery in housing. We absorbed heavy financial losses last year, driven primarily by mark-to-market items and credit-related expenses. But we also provided vital liquidity to the strapped housing market - injecting more than $460 billion in mortgage funding in 2008.""
Freddie Mac said its fourth quarter results were driven primarily by mark-to-market losses of $13.3 billion on the company’s derivative portfolio, guarantee asset and trading securities due to the impacts of spread widening, and declines in interest rates.
In addition, the company recorded $7.2 billion in credit-related expenses related to the continued deterioration in economic conditions during the fourth quarter, including rapid decaying labor markets, steeper declines in home prices, and a drop in consumer confidence to record lows. Results were also impacted by security impairments on the company’s available-for-sale securities of $7.5 billion primarily due to sustained deterioration in the performance of the underlying collateral on the company’s non-agency mortgage-related securities.
As a result of the fourth quarter 2008 net loss and mark-to-market effects on the GSE’s income, Freddie Mac said its stockholders’ equity came to a deficit of $30.7 billion as of December 31, 2008. To counter this value loss, the GSE's conservator, the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA), has submitted a request to Treasury for additional funding in the amount of $30.8 billion. Freddie Mac said it expects to receive these funds sometime this month.
As a result of this draw, the Treasury's stock in the company will increase to $45.6 billion, and the Department will be entitled to annual cash dividends of approximately $4.6 billion. In its earnings announcement, Freddie Mac said it was dependent upon the continued support of the Treasury and FHFA in order to continue operating its business.
Despite the company's unpropitious financials, Freddie Mac Chairman John Koskinen said, ""Going forward, Freddie Mac has an essential role to play in ensuring the Administration’s new Making Home Affordable program is a success. We are committed to taking a leadership role in this important initiative and to doing everything we can to keep millions of families in their homes.""
Freddie Mac said that last year, its foreclosure-prevention efforts enabled approximately 88,000 borrowers facing financial hardship to stay in their homes or sell their properties.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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