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Payment to Treasury Drags Freddie Mac to Net Worth Deficit

""Freddie Mac"":http://www.freddiemac.com reported net income of $577 million for the first quarter of 2012. That combined with $1.21 billion in unrealized gains on securities investments resulted in ""comprehensive income"":http://www.investopedia.com/terms/c/comprehensiveincome.asp#axzz1tsSRUDPK of $1.79 billion over the January-to-March period.


The GSE's finances didn't sit in the black for very long, however, after the company made a $1.8 billion quarterly dividend payment to its primary shareholder, the U.S. Treasury. As a result, Freddie's net worth as of the end of March was a deficit of $18 million. To cover the shortfall, the ""Federal Housing Finance Agency"":http://www.fhfa.gov is requesting a $19 million draw from Treasury.

With that draw, Freddie Mac has required $72.3 billion in taxpayer support since the company was placed into conservatorship. During that time, Freddie has paid in $18.3 billion in dividends to Treasury.

The McLean, Virginia-based GSE says provisions for credit losses declined from $2.6 billion in the fourth quarter of 2011 to $1.8 billion in the first quarter of 2012. Freddie says the decrease is a reflection of fewer loans transitioning to seriously delinquent status.

For the first quarter of this year the company counted 3.51 percent of its single-family portfolio with a total unpaid principal balance of $72.9 billion as seriously delinquent, or 90-plus days past due.

Freddie Mac acquired 23,805 REO homes through foreclosure during the first quarter, but sold 25,037, reducing it REO inventory to 59,323 as of the end of


March. The company was out $171 million over the first three months of 2012 for REO operations expenses, which consists of property maintenance, valuation adjustments, disposition gains or losses, and recoveries from credit enhancements, such as mortgage insurance.

Single-family credit losses over the first-quarter period totaled $3.4 billion, according to the GSE.

Freddie Mac says it refinanced approximately 85,000 mortgages with loan-to-value (LTV) ratios above 80 percent during the first quarter of 2012.

The GSE noted in its ""10Q filing"":http://www.freddiemac.com/investors/er/pdf/10q_1q12.pdf with the Securities and Exchange Commission (SEC) that 20 percent of its single-family credit guarantee portfolio is underwater with an estimated current LTV ratio greater than 100 percent. Loans originated from 2005 to 2008 have been most affected by declines in equity, the GSE stated. Loans of these vintages comprised approximately 30 percent of Freddie’s guarantee portfolio but accounted for 88 percent of its credit losses during the first quarter of this year.

Freddie Mac completed approximately 40,000 single-family loan workouts during the first quarter of 2012, including 13,677 loan modifications through government and proprietary mod programs. Short sales and deeds-in-lieu of foreclosure almost equaled the number of loan modifications during the period at 12,245.

In the first quarter of this year, the GSE issued $2.6 billion in new repurchase requests to lenders based on breaches of representations and warranties. Outstanding repurchase requests climbed to $3.2 billion as of the end of March, after the company collected $850 million and cancelled $1.2 billion upon the servicer providing missing documentation or successfully appealing the buyback request.

Freddie Mac said in its SEC filing, “As of March 31, 2012, two of our largest seller/servicers had aggregate repurchase requests outstanding … of $1.7 billion, and approximately 47 percent of these requests were outstanding for four months or more.”

The GSE says ultimately, the amount it’s able to recover from buybacks may be “significantly less” than its estimates of potential loss exposure.

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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