Friday, November 14, 2008

Freddie Mac Posts $25 Billion Loss, Requests $14 Billion From Treasury

Freddie Mac posted a $25 billion third-quarter loss.  The losses were tied to the writedown of $14.3 billion in deferred tax assets, $9.1 billion in security impairments on its available-for-sale securities and $6 billion in credit-related expenses arising from the "dramatic deterioration in market conditions."  These losses officially take Freddie's book value into the negative by $13.8 billion, requiring a capital infusion from the US Treasury.  As a refresher for any readers who have successfully blocked all the horribly depressing financial news from their memories, both Fannie and Freddie were placed into conservatorship of the Federal Housing Finance Agency of September 6th.  The Treasury has pledged to inject capital in the form of preferred shares into the mortgage lenders when the value of their assets declines below the value of their liabilities up to a maximum amount of $100 billion for each company.  Fannie's $29 billion loss reported on Monday did not require a capital infusion yet, but most analysts expect that the company will need one after the fourth quarter unless the mortgage market improves dramatically.

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