May 3, 2012 / 1:22 PM / 6 years ago

Freddie Mac posts profit, but needs $19 million in aid

WASHINGTON (Reuters) - Freddie Mac FMCC.OB, the No. 2 provider of U.S. mortgage money, said on Thursday it will seek another $19 million in taxpayer aid after its quarterly profit failed to make up for a dividend payment to the government for its controlling stake.

A couple listens as a representative from Freddie Mac talks to them about a loan modification for their home at the National Urban League's Economic Empowerment Tour in Dallas, Texas June 13, 2009. REUTERS/Jessica Rinaldi

The company has now drawn $72.3 billion from the U.S. Treasury since being seized by the government in 2008, and has returned $18.3 billion as the price for the taxpayer support.

It warned it was unlikely to generate enough profit to cover the dividend payments any time soon. The company’s latest aid request compared to $146 million needed to stay afloat in the prior quarter.

For the first three months of the year, Freddie Mac reported net income of $577 million, down from $676 million in the year-ago quarter. The drop was mainly due to derivatives losses totaling $1.06 billion, up from $427 million a year earlier and $766 million in the previous three-month period.

Freddie Mac and larger rival Fannie Mae FNMA.OB, which own or guarantee about 60 percent of U.S. home loans, have been sustained by taxpayer support since September 2008, when they were placed in a government conservatorship as mounting mortgage losses threatened their solvency.

Fannie Mae, which has yet to report quarterly results, has borrowed more than $116 billion from the government and paid almost $20 billion via dividends.

Freddie Mac Chief Executive Charles Haldeman said in a statement the company and its federal regulator focused more heavily in the first quarter on “shifting risk to private investors” and reducing the size of the government’s role in the housing finance market.

The current structure of the government conservatorship requires the two companies to pay a 10 percent dividend on preferred shares to the Treasury for the cash infusions that have kept them in business.

“It’s just the taxpayers paying Fannie and Freddie so that Fannie and Freddie can pay the taxpayers. It’s circular,” said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

Some analysts believe the dividend requirement should be lowered to help preserve their assets. But Vogel said any overhaul of the dividend structure should be taken together with a revamping of the housing finance system.

Both Republicans and Democrats on Capitol Hill agree that Fannie Mae and Freddie Mac should be wound down, but any action appears years away.

The government-controlled companies do not directly make loans to consumers. Rather, they buy and insure mortgages from banks, freeing up cash for more lending.

Freddie Mac said the credit quality of the loans it owns or guarantees improved during the first quarter.

Provisions for credit losses fell to $1.83 billion from $2.58 billion in the fourth quarter and $1.99 billion in the period a year earlier as seriously delinquent loans performed better.

However, the company’s rate of serious delinquent loans remained at historically high levels, Freddie Mac said, due to continued weakness in home prices and extended foreclosures.

Loans made during the boom and bust of the housing market from 2005 to 2008 accounted for a majority of the companies non-performing assets.

Reporting by Margaret Chadbourn; editing by Chizu Nomiyama and Jeffrey Benkoe

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