Second largest mortgage lender in US seeking more funds from treasury
Freddie Mac, the second largest mortgage provider in the US is to ask for an extra $30 to $35 billion to prevent its collapse as the number of delinquencies on its books surge.
The company, which along with its sister institution Fannie Mae was taken over by the government in a September rescue, said that it determined the size of the shortfall while preparing fourth quarter and full year results for last year.
Its investment portfolio declined in December with delinquencies on loans rising 0.2% to 1.72%, more than double the level at the start of 2008.
Risky mortgages and expectations for greater losses in its guarantee business are likely to result in a big hit for Freddie Mac for the fourth quarter, it has admitted.
The extra funds would come from a $100 billion line of credit with the Treasury set up to keep the company at least with positive net worth.
'The actual amount of the draw may differ materially from this estimate as Freddie Mac goes through its internal and external process for preparing and finalizing its financial statements,' the company said in a statement.
Freddie Mac did not reveal the amount of its losses but they appeared huge, given the scale of the recapitalisation sought. It has already received $13.8 billion from the Treasury after reporting a third-quarter loss of $25.3 billion amid the global financial crisis and housing slump. It had lost $28.9 billion in the second quarter.
The company is allowed to grow its portfolio to $850 billion in 2009 as it operates under a government conservatorship. Expansion of the portfolio with loans and securities is seen as a way for the company to support the housing market.
In December Freddie Mac entered into contracts to buy or sell $25.37 billion in mortgages in coming months, up from about $15 billion in November and the highest since June.
It has been adding loans and securities guaranteed by itself and others, and selling the non-agency mortgage bonds backed by the riskiest loans made during the housing boom.