Mortgage finance giant Freddie Mac said Monday that its loss in the second quarter narrowed but that taxpayers would still be on the hook for the foreseeable future.
Freddie's loss in the three-month period ended June 30 was $4.7 billion, compared with $6.8 billion in the first quarter.
As a result of the losses, Freddie will need $1.8 billion in government aid on top of more than $60 billion already provided by taxpayers.
Freddie's quarterly loss resulted from the company's decision to set aside more money to cover losses on home loans that are not being paid off. The Reston company is also losing money as it restructures mortgages for borrowers who can't afford the monthly payments, part of the Obama administration's efforts to reduce foreclosures.
"Freddie Mac continues to support the still-fragile housing market by providing America's families with access to affordable home financing and foreclosure alternatives," chief executive Charles E. Haldeman Jr. said in a statement. "We recognize that high unemployment and other factors still pose very real challenges for the housing market, and with that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds as we support the nation's housing market."
The federal government stepped into Freddie and its larger rival, Fannie Mae, two years ago. Now, it is government decisions that are driving a good bit of the companies' losses.
Since then, they have been run by government overseers who have told the companies to help carry out the Obama administration's housing policy. They have focused on continuing to guarantee mortgages to keep interest rates low and on reworking unaffordable home loans so borrowers can avoid foreclosure. The federal government has pledged to keep the companies solvent.
The firms are also paying steep dividends to the government in return for the aid. The dividend rate, 10 percent, is far more than the companies would pay to raise money in the capital markets.
After the latest round of assistance, Freddie will be required to pay $6.4 billion in annual dividends to the government. "This dividend amount exceeds the company's annual historical earnings in most periods," Freddie said in a statement. "Freddie Mac expects to request additional draws under the Purchase Agreement in future periods."
Fannie is facing a similar challenge. The D.C.-based firm reported a $1.2 billion loss last week.
The dividends are forcing Fannie and Freddie to borrow money from the Treasury to repay taxpayers, creating a cycle of ever-increasing demands for government infusions of money and dividend payments.
The Obama administration and Congress are beginning to devise a new housing finance system to replace Fannie and Freddie. No decisions about the future of U.S. housing policy have been announced.
WP
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