A Look at Freddie's Trailing Six Quarter Performance

On Monday we took a look at Fannie's (FNM) abysmal performance over the last five quarters, and today we'll take a look at Freddie Mac's (FRE). As you can imagine it's just more of the same:

First here is a look at the increase in their lending reserves since Q4 2006:

click to enlarge

Graphic courtesy of Freddie Mac; Click image to see a larger version

Lending losses have increased 839% since Q4 2006

Net Charge-offs have increased  1,373% since Q4 2006

It's worth noting that over the same time period lending losses as a % of their overall mortgage portfolio have increased by about 500%.

Now let's look at the financials over the last six quarters:

Graphic courtesy of Freddie Mac; Click image to see a larger version

*The number in parenthesis is the performance over the last four quarters

• Operating (Pre-Tax) Losses: -8.4 Billion (8.7 Billion)
• Tax Benefits: 4.4 Billion (4 Billion)
• Net Losses: 5.8 Billion (5.4 Billion)

I just can't stress enough how spreading out these losses (and the risk to the economy) over multiple companies is an absolute must right now, if this had been handled properly years ago we could very well have a situation where some of our mortgages GSEs were profitable and the cost of potential bailouts, economic risks, etc., was greatly reduced. Instead of thinking solely in terms of injecting liquidity into the housing markets, Congress needs to think in terms of striking a conservative balance between mortgage market liquidity and risk.

View the FRE WikiChart on Wikinvest

You can read the Q2 "financial statements and core tables" here, and view the slides from the conference call here.

Sources

Freddie Mac: "Q2 2008 Financial Results" --   August 6, 2008.

Comments

[madasiwannabe:]

If I understand your article, your saying the GSE's have a growing issue and that issue is being compounded by their contraction, which means decreased liquidity in the financial and housing market. The loss of mortgage liquidity will in turn diminish home values and further compound the GSE's issues.

The share holders have been eating these losses, not the taxpayer. Undermining the confidence in these institutions also reduces their ability to raise capital and attract investors. This also hurts market liquidity and limits the ability of the GSE's to absorb the coming losses. The loss of confidence also causes downgrades in their securities which forces them to increase rates to attract investors.

Nationalization removes investors and puts the entire burden of the losses on the taxpayer. It also adds 5 Triilion dollars of questionable value mortgage backed securities to the nations already negatively amatorized debt. Keeping them seperate but part of the government doesn't keep the overall debt seperate. The Feds will have to raise rates and taxes to absorb the burden currently being born by the shareholders. This situation would drive up interest rates to attract investors to buy government instruments.

Splitting the GSE's up and selling them to the market makes them attractive targets for brokers that currently buy their securities. Cutting out the middleman would increase their profit margins and they alone would drive mortgage interest rates. Sounds like the makings of a Ponzi scheme...

Doesn't take to long to figure out who would benefit most from any chink in the GSE's armor, and I can't believe the media is listening to their mouthpiece. His policies and insistance that every American should be afforded the opportunity to own a piece of the American dream created the situation that he is now getting paid to dismantle.

Best part of this scam is that the media and we the taxpayers are doing all the work. Check the timing of the former Fed Chairmen's appearances and interviews with the stock ticker for the GSE's. Could it be just a simple coincidence that whenever the stock ticks up, the media goes into high gear? We are being scammed my friends and if these guys pull it off, we will be bled out, 1% at a time.

2008 Aug 15 07:01 AM

[Markham Lee_:]

To be sure I'm not a big fan of the GSEs existence in general, as I don't think the government should be in the business of providing a quasi-subsidy for housing.

BUT

I'm not going to win that war.

So I'd like to propose that the GSEs be broken up into smaller companies that will be split up into new companies if they grow larger than a certain size. The idea is not to manage the GSEs from the perspective of pump as much liquidity into the mortgage markets as possible, but from the perspective of minimize the risk such an organization poses to the economy.

The idea that the Government has created two companies that have the potential to dump massive liabilities on the tax payer, wreak havoc on the economy and on the global credit markets is just criminal. Steps need to be taken ASAP to reign in the GSEs, curtail their investments and break them up in order to spread the risk around.

-M

2008 Aug 15 04:30 PM