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Freddie Mac Reports Operating Results (10-Q)

November 03, 2010 | About:

Freddie Mac (FRE) filed Quarterly Report for the period ended 2010-09-30.

Freddie Mac has a market cap of $220.7 million; its shares were traded at around $0.34 . FRE is in the portfolios of Murray Stahl of Horizon Asset Management, Glenn Greenberg of Brave Warrior Capital, Inc., Richard Pzena of Pzena Investment Management LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Our financial performance in the third quarter of 2010 continues to be impacted by declines in long-term interest rates and the ongoing weakness in the economy, including in the mortgage market. Our total equity (deficit) was $(58) million at September 30, 2010 as our quarterly dividend of $1.6 billion to Treasury exceeded total comprehensive income (loss) for the third quarter of 2010. Our total comprehensive income (loss) was $1.4 billion for the third quarter of 2010 consisting of a net loss of $2.5 billion, reflecting continued significant provision for credit losses, and a $3.9 billion improvement in unrealized losses, net of taxes, related primarily to available-for-sale securities recorded in AOCI. On September 30, 2010, we paid a quarterly dividend to Treasury of $1.6 billion in cash on our senior preferred stock. To address our deficit in net worth, FHFA, as Conservator, will submit a draw request on our behalf to Treasury under the Purchase Agreement for $100 million. Our ability to access funds from Treasury under the Purchase Agreement is critical to keeping us solvent.

Historically, our credit loss exposure has also been partially mitigated by mortgage insurance. Primary mortgage insurance is required to be purchased, at the borrowers expense, for mortgages with higher LTV ratios. We received payments under primary and other mortgage insurance of $525 million and $1.2 billion in the three and nine months ended September 30, 2010, respectively, to help mitigate our credit losses.

Since the beginning of 2008, on an aggregate basis, we recorded provision for credit losses associated with single-family loans of approximately $59.1 billion, and an additional $4.9 billion in losses on loans purchased from our PCs, net of recoveries. The majority of these losses are associated with loans originated in 2005 through 2008. Due in part to the factors discussed below, the loans we purchased or guaranteed that were originated in 2005 through 2008 may give rise to additional losses we have not yet provided for. However, we believe, as of September 30, 2010, we provided for the substantial majority of credit losses we expect to ultimately realize on these loans. Various factors, including increases in unemployment rates or further declines in home prices, could require us to provide for losses on these loans beyond our current expectations.

The following table provides certain credit statistics for our single-family credit guarantee portfolio. The UPB of our single-family credit guarantee portfolio decreased 3% during the first nine months of 2010, from approximately $1.90 trillion at December 31, 2009 to $1.84 trillion at September 30, 2010.

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