Freddie Mac Profit Climbs 65%
Freddie Mac's (FMCC) second-quarter profit jumped 65% as the improving housing market continued to boost the mortgage-finance company's credit quality, while Freddie also benefited from large derivative gains.
The quarterly profit was Freddie's seventh consecutive, and its second-largest ever.
The fortunes of Freddie and sister company Fannie Mae (FNMA), which have been operating under government control since 2008, have risen in recent months as home prices have rebounded and borrower delinquencies have fallen, allowing them to set aside less money to cover future losses.
But with the housing market finally on the mend, President Barack Obama outlined his vision on Tuesday for scaling back federal support of the nation's mortgage market, part of an opening bid to help build support for bipartisan Senate talks to replace mortgage giants Freddie Mac and Fannie Mae.
Nearly five years they were seized by the U.S. government, Mr. Obama called for ending the business model of Fannie and Freddie. But in their place, Mr. Obama made clear he would only support a system that provided continued access to long-term, fixed-rate mortgages. Those loans remain unique in the U.S. and likely require some form of a federal backstop if they are to remain widely available.
Freddie's latest results were boosted by a credit-loss benefit of $623 million for the quarter, while the year earlier's were weighed down by a provision of $155 million.
Freddie's single-family delinquency rate was down at 2.79%, compared with 3.45% a year earlier and 3.03% in the first quarter.
The company posted $1.36 billion worth of derivatives gains for the quarter versus losses of $882 million a year earlier. Noninterest income was $678 million versus a loss of $751 million a year earlier. However, net interest income dropped 5.5% to $4.14 billion.
The U.S. government took over Freddie and Fannie after rising mortgage losses threatened to eat through their thin capital cushions. Propping up the two companies, which don't make loans but which account for the lion's share of U.S. home-loan financing, has cost taxpayers well over $100 billion so far.
On Wednesday, Freddie said it didn't need to request any funds from Treasury for the second quarter. Based on a net worth of $7.4 billion, the company's dividend obligation to Treasury will be $4.4 billion in September. Including the September obligation, total cash dividends paid to Treasury will be $41 billion.
Overall, Freddie posted a profit of $4.99 billion, compared with a prior-year profit of $3.02 billion. However on a per-share basis, which reflects preferred dividends and undistributed net worth sweep, the company's profit was down at 19 cents from 37 cents.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
