Freddie Mac, one of the two main U.S. mortgage companies that the U.S. government is depending on to help stabilize the housing market, said on Wednesday it needs $30.8 billion from the Treasury to survive after a massive fourth-quarter loss.
The company, the second-largest provider of funding of U.S. mortgages and government-controlled since September, recorded $7.2 billion in credit-related expenses, $7.5 billion in write-downs on securities and $13.3 billion of losses on derivative hedges and mortgage guarantee assets, it said.
Freddie Mac is struggling to contain losses as the Obama administration is asking it and rival Fannie Mae
Fannie Mae last month said it lost $25.2 billion in the fourth quarter, and said its regulator requested $15.2 billion from Treasury, which agreed to provide the money via purchase of senior preferred stock.
Together, Freddie Mac and Fannie Mae own or guarantee some $5 trillion in mortgages, giving them the greatest incentive and reach for fixing the housing market that is in its worst downturn since the Great Depression.
But moves to support the Obama housing plan, such as eliminating fees for riskier loans and suspending foreclosures, could prolong their losses and threaten future profitability, analysts said.
Chief Executive Officer David Moffett last week said he would quit after just six months on the job in a blow to the company working to strike the balance between a heavier government hand and making money. Shareholders were virtually wiped out in as it was taken under conservatorship, and the stock has traded below $1 since November.
Freddie Mac earlier on Wednesday named John Koskinen, its non-executive chairman, as interim CEO.
Freddie Mac is dependent upon the continued support of Treasury and the Federal Housing Finance Agency in order to continue operating its business, it said in the statement.
Freddie Mac said its provisions for credit losses would probably stay high in 2009, suggesting it sees a tough road ahead even as Obama's Housing Affordability and Stability Plan aims to help as many as nine million homeowners avoid foreclosure through refinancings and loan modifications.
It also wrote down $8.3 billion in tax-related assets, essentially conceding that it see profits any time soon.
Provisions for credit losses increased in the fourth quarter to $7 billion from $5.7 billion in the previous period. For 2008, provisions surged to $16.4 billion from $2.9 billion a year earlier.
It's hard to be too shocked at some of the numbers because they were already under duress, said Bret Barker, a portfolio manager at Metropolitan West Asset Management in Los Angeles, who noted however that the capital draw was at the low end of estimates. All told, I have a hard time saying the worst is over for housing.
Freddie Mac net interest income rose 43 percent in the fourth quarter to $2.6 billion, and more than doubled on the year as it expanded its portfolio to a record $805 billion with the use of low-cost short-term debt.
The Obama housing plan has boosted caps on the portfolios of Freddie Mac and Fannie Mae to $900 billion each this year, along with a corresponding increase to allowed debt. But the companies are seen reducing their reliance on short-term debt this year since it imperfectly funds long-term mortgages.
(Additional reporting by Jennifer Ablan)