Freddie Mac has seen their highs and lows in the last few years, but does it make sense for taxpayers to continue to bail out this mortgage giant? Freddie Mac was created in 1971 by the U.S. government to act as a home mortgage buyer. After several decades of success, the government mortgage company had to bailed out. Just a few years later, Freddie Mac is requesting for $1.8 billion in additional federal aid after posting a larger loss in the second quarter. Freddie Mac said Monday it lost $6 billion, or $1.85 per share, in the April-to-June period. Even as home mortgage rates hit record lows, Freddie Mac continues to struggle. The company is required to pay a 10 % annual dividend to the Treasury Department on money it has received from the government. That made up $1.3 billion of the company’s second-quarter losses. The company lost $840 million, or 26 cents a share, in the same quarter last year. Many mortgage executives have started to wonder if Freddie Mac is struggling when home loan rates are this low -- - -- How will they do when interest rates rise?
Freddie Mac VP on Getting a Mortgage
The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae from the brink of failure nearly two years ago. The new request means they have needed $148.2 billion to stay afloat, about $63.1 billion of which is being used by Freddie Mac. Freddie Mac is losing money from bad loans it backed, many of them before the housing market went bust. It had $118 billion in bad loans at the end of June, up from $103.4 billion at the end of last year. It owned more than 62,000 foreclosed properties in June, up from about 35,000 a year earlier.
Can the U.S. Afford Another Mortgage Bail-Out?
Both Fannie Mae and Freddie Mac have both lost tens of billions of dollars during the past two years and both are asking the government to prop them up. Last week, Fannie Mae requested $1.5 billion after posting a loss of $3.13 billion, or 55 cents per share, in the second quarter. Still, the two companies are taking different approaches to their situations. Fannie Mae sounded optimistic about its future. Freddie Mac offered a more tempered view. “We recognize that high unemployment and other factors still pose very real challenges for the housing market,” CEO Charles Haldeman said in a statement. “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.” Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. They buy home loans from lenders, package them into bonds with a guarantee against default and sell them to investors.
During the housing boom, Fannie and Freddie faced political pressure to expand homeownership and competitive pressure from Wall Street to back ever-riskier loans. When the market went bust, defaults and foreclosures piled up, and the government had to take them over. Over the next year, lawmakers plan to review the nation’s mortgage-lending system and consider a potential replacement for Fannie Mae and Freddie Mac. The financial overhaul signed by President Barack Obama didn’t address that issue, despite protests from Republicans that it was incomplete without a such a plan. The administration is holding a public conference on Aug. 17 in Washington to discuss the mortgage system
