Freddie Mac’s Profit Increases, Taxpayer Funds No Longer Needed
Freddie Mac’s Profit Increases, Taxpayer Funds No Longer Needed
Last Tuesday, Freddie Mac reported an increase in their profits for the second quarter brought about by the decrease in credit losses. The government-owned mortgage-finance company said that it does not need extra funds from the U.S. Treasury to remain solvent.
Moreover, Freddie Mac said that it produced $3 billion in profit for the months April to June, a significant increase from $577 million of net income in the previous period.
Freddie Mac, together with its bigger sister company Fannie Mae, was controlled by the government in the year 2008 following the increase in mortgage losses.
According to Freddie Mac, the loans that were issued from 2005 to 2008, which led to its substantial losses, were becoming a minor part of its portfolio. By the end of quarter two, the loans made up 28 percent of its single-family portfolio. Moreover, the delinquency rate decreased from 3.51 percent in March to 3.45 percent at the end of June.
Freddie Mac is obliged to pay 10 percent of the government loans as dividends every quarter, just like the way credit card borrowers make minimum monthly repayments. During the second quarter, the company’s income was enough to make a $1.8 billion dividend payment to the U.S. Treasury.
Since it was taken over by the government in 2008, Freddie Mac has taken $72.3 billion in taxpayer funds, and has paid approximately $20.1 billion to the Treasury Department. It did not need government funds during the first quarter of 2011 and three quarters in the year 2009.
Meanwhile, Edward DeMarco, the company’s director, believes that letting the companies write down loan principal would increase the cost of the taxpayer bailout. In the previous week, DeMarco refused the administration’s request to help homeowners by using taxpayer funds from the bank bailout program.
Both Freddie Mac and Fannie Mae purchase mortgages from lenders and resell them as securities for investors. The two companies, together with the Federal Housing Administration, offer funds for more or less 90 percent of all U.S. mortgages.
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