Friday, November 14, 2008

Freddie Mac First to the Trough

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Let's keep an eye on this because as I mentioned we will be thanking the stars above if we are only on the hook for $200B ($100B each) to Fannie and Freddie. My thought process is these 2 institutions will be the center of a major homeowner bailout that when we look back in 5-7 years will cost potentially a trillion (give or take a couple hundred billion) as we re-do interest rates, mark down principal to save millions of Americans.

Freddie is the first to go to the government, and already is asking for the first $13.8 Billion. $13.8 Billion down, $86.2 Billion to go before they hit their (cough) ceiling of $100 Billion.
  • Freddie Mac is asking for an initial injection of $13.8 billion in government aid after posting a massive quarterly loss. The mortgage finance company is making the first request to tap the $200 billion promised by the Treasury Department to keep it and sibling company Fannie Mae afloat after the two were seized by federal regulators more than two months ago. Freddie Mac said it expects to receive the money by Nov. 29.
  • The McLean, Va.-based company posted a loss Friday of $25.3 billion, or $19.44 per share, for the third quarter. The loss was mainly due to a $14.3 billion charge to reduce the value of tax assets, but also was driven by $9.1 billion in writedowns on mortgage securities, and $6 billion in credit losses due to soaring mortgage delinquency rates and foreclosures.
  • Freddie Mac said that rising unemployment rates, tightening credit and deteriorating economic conditions "contributed to a substantial increase in the number of delinquent loans," including prime loans made to borrowers with strong credit.
  • Freddie Mac's overall delinquency rate rose to 1.22 percent, from 0.9 percent at the end of June, and 0.5 percent a year earlier.
  • On Monday, Fannie Mae posted $29 billion loss in the third quarter as it took a massive tax-related charge. While Fannie Mae said it may have to tap the government's for help in the coming months, it has not yet done so. (soon enough!)
  • Fannie Mae and Freddie Mac, which own or guarantee around half of the $11.5 trillion in U.S. outstanding home loan debt, operate in a conservatorship that enables the government to inject up to $100 billion in each company in exchange for ownership stakes of almost 80 percent.

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