Freddie Mac’s (FRE) fourth quarter net loss came in at $2.39 per share, substantially higher than the Zacks Consensus Estimate of a loss of 80 cents. This also compares unfavorably with a net loss of $2.06 in the prior quarter.
Results for the quarter exclude the preferred dividend of $1.3 million paid to the U.S. Treasury on the senior preferred stock. With some early signs of stabilization in the housing market, Freddie Mac expects low mortgage rates, relatively high affordability and the homebuyer tax credit to help fuel the recovery in the upcoming quarters. Though provision for credit losses showed some improvement over the prior quarter, it remained at an elevated level as the credit market continued to deteriorate.
For full year 2009, net loss narrowed to $25.7 billion or $7.89 per share, compared to a loss of $50.8 billion or $34.60 in the previous year.
Freddie Mac mainly focuses on initiatives that support the Making Home Affordable Program (MHA Program) announced by the Obama Administration in Feb 2009. As a leading player, Freddie Mac continued to support the housing market during the fourth quarter of 2009.
In 2009, Freddie Mac helped more than 272,000 borrowers stay in their homes or sell their properties through its long-standing traditional foreclosure avoidance programs and Home Affordable Modification program (HAMP). Additionally, 129,380 loans remained in HAMP trial periods as of Dec 31, 2009, according to information provided by the MHA program administrator.
Net loss (excluding preference dividend) for Freddie Mac for the reported quarter was $7.8 billion, compared to a net loss of $6.7 billion in the prior quarter. During the reported quarter, provision for credit losses was $7.0 billion, compared to $8.0 billion in the prior quarter. Though provision for credit losses decreased compared to the prior quarter, it remained at an elevated level due to continued credit deterioration and challenging economic conditions.
Fully taxable-equivalent net interest income was $4.6 billion for the reported quarter, almost flat compared to the prior quarter. Net interest yield on a fully taxable-equivalent basis for the fourth quarter of 2009 was 2.15%, up 10 basis points (bps) sequentially. The increase in net interest yield in the fourth quarter was primarily driven by lower funding costs due to lower interest rates on Freddie Mac’s short- and long-term debt.
Management and guarantee income for Freddie Mac for the quarter was $743 million, compared to $800 million in the prior quarter. The sequential increase reflects reduced amortization income related to certain pre-2003 deferred fees due to an increase in forecasted interest rates, which resulted in a decrease in projected prepayments.
Other non-interest income for the quarter came in at $883 million, compared to a loss of $1.4 billion in the prior quarter. Other non-interest income for the quarter included net mark-to-market gains of $2.1 billion, compared to net mark-to-market gains of $42 million in the prior quarter.
Credit quality significantly worsened during the quarter. Total single-family delinquency rate, excluding Structured Transactions increased 54 bps sequentially to 3.87%. At the same time, Single-family net charge-offs increased to $2.4 billion from $2.2 billion in the prior-quarter. Total non-performing assets increased to $105.6 billion as on Dec 31, 2009 from $92.2 billion at Sep 30, 2009.
Net worth as on Dec 31, 2009 was a positive $4.4 billion, compared to a positive $9.4 billion as on Sep 30, 2009. The decline in positive net worth for the fourth quarter of 2009 resulted from the fourth quarter 2009 net loss of $6.5 billion and the dividend payment of $1.3 billion to the Treasury on the senior preferred stock. Freddie Mac had a net worth deficit of $30.6 billion as on Dec 31, 2008.
Freddie Mac was among the hardest hit financial firms by the housing slump, credit crisis and ongoing recession. We do foresee the current expansion of the Home Affordable Refinance Program (HARP) to bring down losses from foreclosures in the upcoming quarters. We think the deterioration in the overall market condition will continue to negatively impact Freddie Mac’s financial results. As a result, the company may need additional funds from the Treasury.
However, we expect the government conservatorship to continue for a long time and thus see no value in the company for common shareholders.
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