Freddie Mac’s (FRE) third quarter net loss (available to common shareholders) came in at $1.94 per share, compared to a net loss of 11 cents in the prior quarter and $19.44 in the prior-year quarter.
Results for the quarter exclude the preferred dividend of $1.3 million paid to the U.S. Department of the Treasury on the senior preferred stock. Though the results improved significantly over the prior-year quarter, the company expects its provision for credit losses to remain high during the fourth quarter of 2009.
The company is mainly focused on initiatives that support the Making Home Affordable Program (MHA Program) announced by the Obama Administration in February 2009. As a leading player, Freddie Mac continued to support the housing market during the third quarter of 2009, enabling more than 78,000 struggling borrowers to accept offers to modify their loans under the Home Affordable Modification program and approximately 69,000 borrowers to lower their payments under the Freddie Mac Relief Refinance Mortgage.
Net loss (excluding preference dividend) for Freddie Mac for the quarter was $6.3 billion, compared to a net loss of $25.3 billion in the prior-year quarter. During the reported quarter, provision for credit losses increased 32.9% year-over-year to $7.6 billion due to continued credit deterioration in the company’s single-family credit guarantee portfolio.
Net loss was partly offset by net interest income for the quarter, which increased 4.7% sequentially to $4.5 billion. The increase was primarily driven by lower short-term and long-term funding costs.
Management and guarantee income for Freddie Mac for the quarter increased 12.7% sequentially to $800 million. The sequential increase reflects higher amortization income related to certain pre-2003 deferred fees due to the decrease in forecasted interest rates, which resulted in an increase in projected prepayments.
Other non-interest loss for the quarter came in at $1.9 billion, compared to net interest income of $2.5 billion in the prior quarter. Other non-interest loss for the quarter included net mark-to-market gains of $42 million, compared to net mark-to-market gains of $5.2 billion in the prior quarter.
Credit quality significantly worsened during the quarter. Total single-family delinquency rate, excluding Structured Transactions increased 55 bps sequentially to 3.33%. At the same time, Single-family net charge-offs increased to $2.2 billion from $1.9 billion in the prior-quarter. Single-family non-performing assets increased to $91.6 billion at Sep 30, 2009 from $76.9 billion at Jun 30, 2009.
Net worth at Sep 30, 2009 was positive at $10.4 billion. This reflects an $8.5 billion gain in accumulated other compressive income (AOCI), primarily driven by improved values on the company’s available-for-sale securities.
Freddie Mac has been 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. The deterioration in the overall market condition continues to negatively impact Freddie Mac’s financial results. As a result, the company expects to request 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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