Freddie Mac (NYSE: FRE) lost another $8 billion in the first calendar quarter of the year. That includes $1.3 billion in dividends paid to the Treasury. Freddie might have simply kept the money. It needs another $10.6 billion from the government to continue its operations.
The company’s CEO Charles Haldeman said, “We are seeing some signs of stabilization in the housing market, including house prices and sales in some key geographic areas.” But, the day will of that stabilization has come too late to prevent taxpayers from putting more money into the pot.
The $10 billion is an unavoidable investment at this point. It is needed because of the contagion that worked its way through the financial system in 2008. Freddie Mac and Fannie Mae were hit particularly hard because of the number of loans that they hold which went sour. Freddie says that its role is essential to the recovery of the housing market, and that is almost certainly true. To cover that service to the residential mortgage markets has already cost taxpayers $61 billion if the current request is met.
The government cannot leave aside Freddie Mac’s role as the second largest provider of residential mortgage funds, at least until another system can be crafted, and no one has suggested a reasonable means to do that.
Single family delinquencies in March, according to Freddie Mac data, were 4.13%. That number has been stable this year, so there is hope that the worst is behind the company if the housing crisis has bottomed.
The magnitude of Freddie’s contribution to building a wall against the mortgage catastrophe is compelling. Its continued support for the housing market in the first quarter of 2010 included about $97 billion in liquidity. But, it is still too early to call those activities a success. The first quarter report from the company said it “provided foreclosure alternatives for more than 71,000 struggling families” In a market where 11 million home loans are underwater and foreclosures are running at 300,000 per month, the Freddie number seems insignificant.
Freddie’s most persuasive argument for more funding is a simple and troubling one. No matter what the cost, there is no other way for the government to provide ready capital to the housing market.
Douglas A. McIntyre
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