Attached files
| file | filename |
|---|---|
| 8-K - 8-K - FEDERAL HOME LOAN MORTGAGE CORP | f71165e8vk.htm |
| EX-99.2 - EXHIBIT 99.2 - FEDERAL HOME LOAN MORTGAGE CORP | f71165exv99w2.htm |
| EX-99.3 - EXHIBIT 99.3 - FEDERAL HOME LOAN MORTGAGE CORP | f71165exv99w3.htm |
Exhibit 99.1
|
News Release |
FOR
IMMEDIATE RELEASE
November 6, 2009
MEDIA CONTACT: Michael Cosgrove
703-903-2123
INVESTOR CONTACT: Linda Eddy
703-903-3883
November 6, 2009
MEDIA CONTACT: Michael Cosgrove
703-903-2123
INVESTOR CONTACT: Linda Eddy
703-903-3883
FREDDIE
MAC RELEASES THIRD QUARTER 2009 FINANCIAL RESULTS
Summary
| • | Third quarter 2009 net loss was $5.0 billion. After the dividend payment of $1.3 billion to the U.S. Department of the Treasury on the senior preferred stock, net loss attributable to common stockholders was $6.3 billion, or $1.94 per diluted common share, for the quarter. |
| • | Net worth at September 30, 2009 was $10.4 billion. The positive net worth reflects an $8.5 billion gain in AOCI primarily driven by improved values on the company’s available-for-sale securities. As a result of the positive net worth, no additional funding from the U.S. Department of the Treasury was required under the terms of the Senior Preferred Stock Purchase Agreement for the third quarter. |
| • | Third quarter 2009 results reflect: |
| • | Net interest income of $4.5 billion; | |
| • | Net impairment of available-for-sale securities recognized in earnings of $1.2 billion; and | |
| • | Provision for credit losses of $7.6 billion. |
| • | During the third quarter of 2009, Freddie Mac continued to support the housing market by: |
| • | Supporting the Obama Administration’s Making Home Affordable program — enabling more than 78,000 struggling borrowers (more than 88,000 outstanding as of September 30, 2009) to accept offers to modify their loans under the Home Affordable Modification program and approximately 69,000 borrowers (approximately 98,000 year-to-date as of September 30, 2009) to lower their payments under the Freddie Mac Relief Refinance Mortgagesm; | |
| • | Helping approximately 26,000 additional borrowers stay in their homes or sell their properties through the company’s long-standing, traditional foreclosure prevention programs; and | |
| • | Providing liquidity to the mortgage market by purchasing or guaranteeing $125 billion in mortgage loans and mortgage-related securities, including $91 billion in single-family refinance volume. |
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 2
November 6, 2009
Page 2
McLean, VA — Freddie Mac (NYSE:FRE) today
reported a net loss of $5.0 billion for the quarter ended
September 30, 2009, compared to net income of
$768 million for the quarter ended June 30, 2009.
After the dividend payment of $1.3 billion on its senior
preferred stock to the U.S. Department of the Treasury
(Treasury), Freddie Mac reported a net loss attributable to
common stockholders of $6.3 billion, or $1.94 per diluted
common share, in the third quarter of 2009, compared to a net
loss attributable to common stockholders of $374 million,
or $0.11 per diluted common share, in the second quarter of 2009.
Freddie Mac had positive net worth of $10.4 billion at
September 30, 2009, compared to positive net worth of
$8.2 billion at June 30, 2009. As a result, no
additional funding was required from Treasury under the terms of
the Senior Preferred Stock Purchase Agreement (Purchase
Agreement) for the third quarter. The improvement in positive
net worth at September 30, 2009 was attributable to an
$8.5 billion decrease in unrealized losses recorded in
accumulated other comprehensive income (loss) (AOCI), primarily
as a result of improved fair values on the company’s
available-for-sale (AFS) securities, partially offset by the
third quarter 2009 net loss of $5.0 billion and the
dividend payment of $1.3 billion to Treasury on the senior
preferred stock.
“During this critical time for homeowners and the market,
we continued to support the recovery of the housing market by
providing a stable source of mortgage funding and helping people
keep their homes,” said Freddie Mac Chief Executive Officer
Charles E. Haldeman, Jr. “In the third quarter,
we helped more than 100,000 borrowers avoid
foreclosure — a growing figure that includes more than
78,000 new loans that entered into HAMP trial periods. We expect
this to continue, and we have strengthened our efforts to make
MHA successful and to help families, our economy and our nation.
“We continued to see some positive housing market
developments, including higher volumes of home sales and modest
increases in house prices in certain areas of the country,”
Haldeman said. “However, we believe that factors like high
unemployment, excess inventory and rising foreclosures will
continue to impede a full recovery for some time and put further
downward pressure on house prices. We expect to request
additional funds from Treasury as this prolonged deterioration
of market conditions continues to negatively impact our
financial results.
“Going forward, I’m especially pleased that we’ve
completed a senior management team that is highly seasoned,
highly respected and intensely focused on serving our mission
and strengthening our company,” Haldeman added. “In
September, Bruce Witherell — a veteran Wall Street
manager and leader — joined us as our chief operating
officer. In October, Ross Kari — an executive with
substantial housing finance experience in both the GSE and
private sectors —
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 3
November 6, 2009
Page 3
became our chief financial officer. Our leadership team, working
with our board of directors and our highly skilled employees, is
committed to doing everything we can to serve our broad mission
and speed the recovery of the U.S. housing market.”
GAAP Results
Third quarter 2009 results were driven primarily by
$7.5 billion in credit-related expenses reflecting the
challenging economic conditions during the third quarter, as
well as $1.2 billion of net impairment of AFS securities
recognized in earnings. These results were partially offset by
$4.5 billion in net interest income mainly due to lower
funding costs.
| Three Months Ended | ||||||||||||
|
($ in millions)
|
September 30, 2009 |
June 30, 2009(1 |
) |
September 30, 2008(1 |
) | |||||||
|
Net interest income
|
$ | 4,462 | $ | 4,255 | $ | 1,844 | ||||||
|
Management and guarantee income
|
800 | 710 | 832 | |||||||||
|
Other non-interest income
(loss)(2)
|
(1,882 | ) | 2,505 | (12,235 | ) | |||||||
|
Total revenues
|
3,380 | 7,470 | (9,559 | ) | ||||||||
|
Administrative expenses
|
(433 | ) | (383 | ) | (308 | ) | ||||||
|
Credit-related expenses
|
(7,481 | ) | (5,208 | ) | (6,035 | ) | ||||||
|
Losses on loans purchased
|
(531 | ) | (1,199 | ) | (252 | ) | ||||||
|
Other non-interest expense
|
(97 | ) | (97 | ) | (1,171 | ) | ||||||
|
Total expenses
|
(8,542 | ) | (6,887 | ) | (7,766 | ) | ||||||
|
Income (loss) before income tax benefit (expense)
|
(5,162 | ) | 583 | (17,325 | ) | |||||||
|
Income tax benefit (expense)
|
149 | 184 | (7,970 | ) | ||||||||
|
Net income (loss)
|
$ | (5,013 | ) | $ | 767 | $ | (25,295 | ) | ||||
|
Less: Net (income) loss attributable to noncontrolling interest
|
1 | 1 | — | |||||||||
|
Net income (loss) attributable to Freddie Mac
|
$ | (5,012 | ) | $ | 768 | $ | (25,295 | ) | ||||
|
Senior preferred stock dividends declared
|
$ | (1,294 | ) | $ | (1,149 | ) | $ | — | ||||
|
Total equity (deficit) / GAAP net worth (at period end)
|
$ | 10,406 | $ | 8,232 | $ | (13,698 | ) | |||||
|
AOCI, net of taxes (at period end)
|
$ | (26,355 | ) | $ | (34,815 | ) | $ | (25,634 | ) | |||
| (1) | Certain amounts in prior periods have been reclassified to conform to the current presentation. |
| (2) | Three months ended September 30, 2009 includes $(1.2) billion of net impairment of AFS securities recognized in earnings. |
Net interest income for the third quarter of 2009 was
$4.5 billion, compared to $4.3 billion for the second
quarter of 2009. The increase was primarily driven by lower
short-term and long-term funding costs. Net interest income for
the third quarter excludes the cost on funds the
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 4
November 6, 2009
Page 4
company received from the Treasury under the Purchase Agreement,
which is reported as dividends paid on senior preferred stock.
Management and guarantee income for the third quarter of
2009 was $800 million, compared to $710 million for
the second quarter of 2009. This 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 income (loss) for the third quarter of
2009 was a loss of $1.9 billion, compared to income of
$2.5 billion for the second quarter of 2009. During the
third quarter of 2009, the company recognized $1.2 billion
of net impairment of AFS securities in earnings, compared to
$2.2 billion of net impairment of AFS securities recognized
in earnings in the second quarter of 2009, as the
performance of the collateral underlying the company’s AFS
securities continued to deteriorate, though to a lesser extent.
Other non-interest income (loss) for the third quarter of 2009
also included net mark-to-market gains of $42 million,
compared to net mark-to-market gains of $5.2 billion in the
second quarter of 2009. Third quarter results reflect the effect
of lower long-term interest rates on the values of the
company’s derivatives and trading securities, as well as
the impact of tightening spreads on the value of the guarantee
asset.
Credit-related expenses, consisting of provision for
credit losses and real estate owned (REO) operations expense,
were $7.5 billion for the third quarter of 2009, compared
to $5.2 billion for the second quarter of 2009.
Provision for credit losses for the third quarter of 2009 was
$7.6 billion, compared to $5.2 billion for the second
quarter of 2009. The increase in provision was primarily driven
by observed changes in economic drivers impacting borrower
behavior and delinquency trends for certain loans. The lower
provision in the second quarter of 2009 reflects enhancements
made to the company’s estimation methodology in the second
quarter, which resulted in an approximate $1.4 billion
reduction in the company’s second quarter estimate of loan
loss reserves and provision. Freddie Mac expects its provision
for credit losses will remain high during the fourth quarter of
2009.
During the third quarter, the company saw further deterioration
in its single-family guarantee portfolio.
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 5
November 6, 2009
Page 5
| • | Total single-family delinquency rate, excluding Structured Transactions, was 3.33% at September 30, 2009, compared to 2.78% at June 30, 2009. This increase was due to weak economic conditions and, in part, to extended foreclosure timelines and to a high volume of seriously delinquent loans that are remaining in trial periods under the Home Affordable Modification program (HAMP) that might otherwise have completed modification or proceeded to foreclosure. | |
| • | Single-family net charge-offs increased to $2.2 billion in the third quarter of 2009, compared to $1.9 billion in the second quarter of 2009. | |
| • | Single-family non-performing assets including REO properties and delinquent loans underlying the company’s issued PCs and Structured Securities, increased to $91.6 billion at September 30, 2009, compared to $76.9 billion at June 30, 2009. |
REO operations income (expense) for the third quarter of 2009
was income of $96 million, compared to an expense of
$9 million for the second quarter of 2009. The income for
the third quarter was driven by lower disposition losses as well
as recoveries of property write-downs due to the stabilization
of REO fair values during the quarter.
Losses on loans purchased for the third quarter of 2009
was $531 million, compared to $1.2 billion for the
second quarter of 2009. The decrease was due to a significant
reduction in the purchase volume of delinquent and modified
loans as the volume of seriously delinquent loans entering the
HAMP trial period increased during the third quarter. A loan
that has begun the trial period under HAMP will not be modified
and purchased out of the PC pool until the borrower successfully
completes the payment and documentation requirements of the
trial period.
AOCI, net of taxes as of September 30, 2009 was a
loss of $26.4 billion, compared to a loss of
$34.8 billion as of June 30, 2009. The
$8.5 billion decrease in unrealized losses recorded in AOCI
for the third quarter of 2009 primarily resulted from improved
values on the company’s AFS securities.
For a more detailed discussion of results, see
“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS” in the company’s
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009. For a discussion
of risks and uncertainties that could adversely affect the
company’s business, financial condition, results of
operations, capital position, cash flows, strategies
and/or
prospects, see “NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES” in the company’s Quarterly
Reports on
Form 10-Q
for the quarters ended June 30, 2009 and September 30,
2009, “RISK FACTORS” and “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” in the company’s
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009, and
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 6
November 6, 2009
Page 6
“BUSINESS”, “RISK FACTORS” and
“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES” in the company’s Annual Report on
Form 10-K
for the year ended December 31, 2008.
Net
Worth and Senior Preferred Stock
Freddie Mac’s net worth was $10.4 billion at
September 30, 2009. Net worth represents the difference
between the company’s assets and liabilities under
generally accepted accounting principles (GAAP) and is equal to
the company’s total equity (deficit).
The aggregate liquidation preference of the company’s
senior preferred stock was $51.7 billion as of
September 30, 2009. The amount remaining under
Treasury’s $200 billion funding commitment as of
September 30, 2009 was $149.3 billion, which does not
include the $1 billion of senior preferred stock issued to
Treasury as initial consideration for its funding commitment.
Based on the current aggregate liquidation preference of
$51.7 billion, Treasury, the holder of the senior preferred
stock, is entitled to annual cash dividends of approximately
$5.2 billion, which exceeds the company’s annual
historical earnings in most periods. Including the
$1.3 billion quarterly dividend paid on September 30,
2009, the company has paid aggregate dividends of
$3.0 billion in cash on the senior preferred stock to
Treasury at the direction of the Federal Housing Finance Agency
(FHFA), acting as Conservator.
Freddie Mac expects to request additional draws under the
Purchase Agreement in future periods due to a variety of factors
that could adversely affect the level and volatility of the
company’s net worth. For a discussion of these factors,
see “LIQUIDITY AND CAPITAL RESOURCES —
Capital Adequacy” in the company’s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009.
Freddie Mac is under conservatorship and is dependent upon the
continued support of Treasury and FHFA in order to continue
operating its business.
Foreclosure
Prevention and Refinancing Activities
During the third quarter, Freddie Mac continued to provide
significant support to the housing market by working with
struggling borrowers and lenders to prevent foreclosures
whenever possible. The company helped more than 100,000
borrowers stay in their homes or sell their properties during
the third quarter as detailed below:
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 7
November 6, 2009
Page 7
| Three Months Ended | ||||||||||||
|
(number of loans)
|
September 30, 2009 |
June 30, 2009 |
September 30, 2008 |
|||||||||
|
Total loan modifications
|
9,013(1 | ) | 15,603 | 8,456 | ||||||||
|
Repayment plans
|
7,728 | 7,409 | 10,270 | |||||||||
|
Forbearance agreements
|
3,469 | 1,564 | 828 | |||||||||
|
Pre-foreclosure sales
|
6,628 | 4,821 | 1,911 | |||||||||
|
Total completed foreclosure alternatives
|
26,838 | 29,397 | 21,465 | |||||||||
|
HAMP trial period
loans(2)
|
78,484 | 10,129 | — | |||||||||
| (1) | Includes 471 loans modified under HAMP during the three months ended September 30, 2009, based on information reported by the company’s servicers to the Making Home Affordable (MHA) program administrator. |
| (2) | Based on information provided by the company’s servicers to the MHA program administrator. Prior period data was previously reported based on information from certain of the company’s largest servicers and has been subsequently revised. |
Making Home Affordable was the company’s number one
focus and the centerpiece of its foreclosure-prevention efforts.
During the quarter, Freddie Mac continued to enhance its
infrastructure and capacity to support the MHA program, and saw
significantly increased activity in both of its key
programs — HAMP and the Freddie Mac Relief Refinance
Mortgagesm,
which is Freddie Mac’s implementation of the Home
Affordable Refinance program.
Based on information provided by the MHA program administrator,
more than 88,000 trial period modifications were started on
Freddie Mac loans through September 30, 2009 and
approximately 471 HAMP loan modifications were completed.
The completion rate for HAMP loans, which is the percentage of
loans that successfully exit the trial period due to the
borrowers fulfilling the requirements for the modification,
remains uncertain due to the number of new requirements of this
program and the ability to obtain updated information from
borrowers.
Freddie Mac has launched several initiatives to modify more
loans under HAMP and to drive an increase in the number of
successful trial period completions. As part of these efforts,
Freddie Mac has:
| • | Engaged a vendor to help ease backlogs at several servicers by processing requests for HAMP modifications by providing them with document collection and signature services; | |
| • | Launched a program to complete more HAMP modifications by retaining a vendor who will visit eligible borrowers at their homes to help them complete the required trial period documents; and |
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 8
November 6, 2009
Page 8
| • | Implemented a second-look program to review whether borrowers are being properly considered for HAMP by servicers. Borrowers who do not qualify for HAMP are then considered under the company’s other foreclosure prevention programs. |
Freddie Mac continued the purchase of refinance mortgages
originated under the Freddie Mac Relief Refinance
Mortgagesm
during the quarter. The company helped refinance approximately
98,000 loans totaling $20 billion of unpaid principal
balance as of September 30, 2009 under this program.
Freddie Mac expects that the recent enhancements to the Freddie
Mac Relief Refinance
Mortgagesm,
which provide for the increase in the maximum allowable
loan-to-value ratio up to 125 percent and the ability to
refinance through any servicer and which became effective on
October 1, 2009, will enable more borrowers to take
advantage of the program in the coming quarters. As of
September 30, 2009, Freddie Mac had refinanced over
$300 billion in home loans during the year, creating an
estimated $3.8 billion in aggregate annual interest savings
for 1.5 million borrowers.
The company’s single-family foreclosure starts ratio, which
reflects the number of single-family loans that entered the
foreclosure process during the quarter as a percentage of the
total number of loans in the company’s single-family
portfolio at the end of the quarter, was 59 basis points in
the third quarter of 2009. The single-family foreclosure starts
ratio for the second quarter of 2009 was 62 basis points.
Accounting
Developments
In June 2009, the Financial Accounting Standards Board issued an
amendment to the accounting standards for transfers of financial
assets (SFAS 166) and an amendment to the accounting
standards on consolidation of variable interest entities
(SFAS 167). Both amendments are effective and will be
applied prospectively by the company on January 1, 2010.
Freddie Mac expects that the adoption of these two new
amendments will have a significant impact on its consolidated
financial statements, including the consolidation of its
single-family PC trusts and some of its Structured Transactions.
Under these accounting standards, the company will record the
underlying mortgage loans in these single-family PC trusts and
some of its Structured Transactions on its balance sheet. These
mortgage loans have an outstanding unpaid principal balance of
approximately $1.8 trillion as of September 30, 2009.
Additionally, under these accounting standards, the company
expects significant changes to its statement of operations,
including a significant increase in interest income and interest
expense.
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 9
November 6, 2009
Page 9
While Freddie Mac continues to evaluate the impacts of adoption,
the company expects that the adoption could have a significant
negative impact on its net worth and could result in additional
draws under the Purchase Agreement. Actual impacts may differ
materially from current expectations. For more information, see
“RISK MANAGEMENT — Operational Risks” and
“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES” in the company’s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009.
Additional
Information
For more information, including that related to Freddie
Mac’s conservatorship and related actions, see the
company’s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, and the
company’s Consolidated Financial Statements, Core Tables,
and financial results supplement. These documents are available
on the Investor Relations page of the company’s Web site at
www.FreddieMac.com/investors.
Additional information about Freddie Mac and its business is
also set forth in the company’s filings with the SEC, which
are available on the Investor Relations page of the
company’s Web site at www.FreddieMac.com/investors and the
SEC’s Web site at www.sec.gov. Printed copies of these
documents may be obtained free of charge upon request from the
company’s Investor Relations department by writing or
calling the company at shareholder@freddiemac.com,
(703) 903-3883
or
(800) 373-3343.
Freddie Mac encourages all investors and interested members of
the public to review these materials for a more complete
understanding of the company’s financial results and
related disclosures.
* * * *
This press release contains forward-looking statements, which
may include statements pertaining to the conservatorship and the
company’s current expectations and objectives for the MHA
program and other efforts to assist the U.S. residential
mortgage market, as well as the company’s future business
plans, liquidity, capital management, economic and market
conditions and trends, market share, legislative and regulatory
developments, implementation of new accounting standards, credit
losses, internal control remediation efforts, and results of
operations and financial condition on a GAAP, Segment Earnings
and fair value basis. Management’s expectations for the
company’s future necessarily involve a number of
assumptions, judgments and estimates, and various factors,
including changes in market conditions, liquidity,
mortgage-to-debt option-adjusted spread, credit outlook, actions
by FHFA, the Federal Reserve, and Treasury, and the impacts of
legislation or regulations and new or amended accounting
standards, could cause actual results to differ materially from
these expectations. These assumptions, judgments,
estimates and
Freddie Mac Third Quarter 2009 Financial Results
November 6, 2009
Page 10
November 6, 2009
Page 10
factors are discussed in the company’s Annual Report on
Form 10-K
for the year ended December 31, 2008, Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2009, June 30, 2009
and September 30, 2009 and Current Reports on
Form 8-K,
which are available on the Investor Relations page of the
company’s Web site at www.FreddieMac.com/investors
and the SEC’s Web site at www.sec.gov. The company
undertakes no obligation to update forward-looking statements it
makes to reflect events or circumstances after the date of this
press release or to reflect the occurrence of unanticipated
events.
Freddie Mac was established by Congress in 1970 to provide
liquidity, stability and affordability to the nation’s
residential mortgage markets. Freddie Mac supports communities
across the nation by providing mortgage capital to lenders. Over
the years, Freddie Mac has made home possible for one in six
homebuyers and more than five million renters. For more
information, visit www.FreddieMac.com.
###