Fannie Mae-No Politics (FNMA)

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Freddie Mac Blames Accounting for Q3 Loss
By David Morrison November 04, 2015 • Reprints

Citing accounting associated with derivatives it used to hedge its operations, Freddie Mac announced a loss of hundreds of millions of dollars in the third quarter of 2015 Tuesday.

According to the announcement, the government-sponsored enterprise that shares the secondary mortgage market with Fannie Mae lost a net $475 million in the third quarter. That compared to a net income of $4.2 billion in the previous quarter.

Fannie Mae scheduled its earnings announcement for Nov. 5.

“For the first time in four years, Freddie Mac had a net loss in the most recent quarter,” Freddie Mac CEO Donald Layton said. “This $.5 billion loss was caused mainly by the accounting associated with our use of derivatives, whereby the derivatives are marked to market but many of the assets and liabilities being hedged are not. The resulting difference between GAAP reporting and the actual underlying economics, which has created significant GAAP income volatility in our quarterly financial statements, reduced the after tax earnings in the quarter by an estimated $1.5 billion as interest rates declined significantly.”

Layton pointed out the pendulum had swung in the other direction in the second quarter.

“In the prior quarter, we had the opposite result with a $1.5 billion positive contribution to earnings as rates rose significantly,” he said.

Layton said the losses did not reflect the strong fundamentals he said characterize the company’s core business. He also emphasized the losses represented only a small slice of the company’s $1.8 billion in reserves and that the U.S. government has made a profit on the firm.

“Finally, as this loss was just a fraction of the $1.8 billion net worth reserve we have under the Preferred Stock Purchase Agreement, no U.S. Treasury draw was needed, so total dividends paid remains unchanged at $96.5 billion, $25 billion more than we have received,” he said.

However, U.S. Rep. Ed Royce (R-Calif.) took a dim view of the news and declared the loss signaled the two GSEs were endangering taxpayer funds again.

“Losses like this combined with multimillion dollar CEO salaries at the GSEs are the warning shots of a return to the pre-crisis model of private gains and public losses that wrecked the economy,” Royce said. “We can't simply put the blinders on and say that Fannie and Freddie are just like other companies when taxpayers are on the hook if they go in the red."

Royce sponsored a measure that would roll back CEO salaries at Fannie Mae and Freddie Mac to their prior levels. The House Financial Services Committee approved the measure in late July 57-1 and the full House may take it up later this month, according to an announcement from Royce.


http://www.cutimes.com/2015/11/04/freddie-mac-blames-accounting-for-q3-loss