- 03Nov
(Reuters) - Freddie Mac, the second-largest provider of U.S. residential mortgage funding, on Wednesday said ongoing weakness in housing resulted in a $4.1 billion third-quarter net loss and another draw from the Treasury to maintain positive net worth.
Costs may increase "significantly" as snags in the foreclosure processes at major loan servicing companies increase delays in working with troubled borrowers and selling properties, it warned.
Freddie Mac's (FMCC.OB) loss included a $1.6 billion dividend payment on senior preferred stock purchased by the Treasury since the financial crisis and housing slump pushed the mortgage buyer into conservatorship in late 2008.
It has requested $100 million from Treasury under its preferred stock purchase agreement, which would increase the total draws to $64.2 billion.
"As we near the end of 2010, the housing market remains fragile and has recently come under renewed pressure from slowing economic growth, weaker employment and foreclosure uncertainties," Freddie Mac Chief Executive Charles Haldeman said in a statement.
"We believe that it will be a considerable time until the housing market has a sustained recovery," he added.
Freddie Mac's struggle to put losses on loans originated during the housing boom behind it have been challenged by a sputtering economy, and now problems in clearing the backlog of delinquent borrowers through foreclosure.
Delays in selling repossessed properties increases Freddie Mac's carrying costs, while the company may also see added costs as it seeks to fix foreclosure processes at its servicers.
Mortgage companies including GMAC Mortgage and Bank of America Corp. in recent weeks temporarily suspended some foreclosures as signs of shoddy paperwork put a spotlight on how companies were handling the flood of bad loans.
Expenses on Freddie Mac's portfolio of homes it owns through foreclosure increased to $337 million from income of $40 million in the previous quarter.
The housing market has grown increasingly reliant on Freddie Mac and rival Fannie Mae for funding since 2007. Lawmakers plan to reform their taxpayer-supported status but are loathe to undo government ties with the housing market weak and as private investors remain skittish of offering their own money to homeowners.
Freddie Mac's loss including dividend payments was $6 billion in the second quarter.
The McLean Virginia-based company reported a $3.7 billion provision for credit losses, the same as the previous period after factoring for an accounting adjustment. Net interest income was $4.3 billion last quarter, up from $4.1 billion.
