Freddie Mac to Send $2.3 Billion Dividend to Treasury
November 01 2016 - 10:10AM
Dow Jones News
Mortgage-finance company Freddie Mac on Tuesday said it would
send a $2.3 billion dividend payment to the U.S. Treasury, after
posting a sharp profit increase in its latest quarter.
Freddie reported a third-quarter profit of $2.33 billion,
compared with a prior-year loss of $475 million and a June-quarter
profit of $993 million.
The latest quarter included a $700 million gain from tightening
credit spreads. Last year's quarter was hit by $4.17 billion loss
from derivatives, which Freddie uses to hedge interest-rate risk.
This quarter the derivatives loss was $36 million.
The company took a $113 million provision for credit losses,
compared with a benefit of $528 million in the same quarter last
year.
Net interest income fell 2.6% to $3.65 billion.
Amid improvement in the housing market, Freddie saw its serious
delinquency rate continue to improve, reaching 1.02%, the lowest
level since 2008. The company sold $0.6 billion seriously
delinquent single-family loans during the quarter, the same as last
year, in order to mitigate losses and reduce holdings of
less-liquid assets.
"Volumes were higher, credit quality is at its best in eight
years, and legacy assets are continuing to decline," Chief
Executive Donald Layton said.
Freddie and mortgage-finance firm Fannie Mae were put into a
so-called conservatorship under government control during the 2008
financial crisis.
Because its net worth of $3.5 billion was more than its capital
buffer of $1.2 billion, Freddie will send a $2.3 billion dividend
to the Treasury for the quarter. It also didn't need a capital
infusion because total equity remained positive, increasing to
$3.51 billion from $1.3 billion last year.
Under the terms of the bailout, the companies must send nearly
all of their profits to the government in the form of dividends and
wind down their capital buffers over time. Its capital buffer is
scheduled to decline to $600 million in 2017 and zero in 2018.
In all, after the quarter's dividend, the company will have sent
$101.4 billion to the Treasury, compared with the $71.3 billion
infusion it has received.
Freddie and Fannie have recently been caught between
shareholders, civil-rights groups and some small lenders who want
to see them freed from government control, a White House that
believes the current system is broken, and a Congress that can't
come to agreement on what the future system should be.
The price of Freddie's portfolio, as with that of all bonds,
rises and falls as interest rates change. The company uses
derivatives in an effort to counteract that effect, but because of
accounting rules, the derivatives can make large profits or losses
appear over short periods.
Over the long term, the impact of the derivatives accounting
issue is negligible. But as the capital buffer disappears, the
accounting issue could cause Freddie to require an injection of
capital from the Treasury.
Fannie and Freddie don't make loans. Instead they buy them from
lenders, wrap them into securities and provide guarantees to make
investors whole if the loans default.
Freddie said it helped 650,000 families to own or rent a home
through refinancing and borrowing, up from 598,000 last year.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
November 01, 2016 09:55 ET (13:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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