Freddie Mac to ask for another $10 billion bailout funds

Formerly known as the Federal Home Loan Mortgage Corporation (FHLMC), the company reported that it lost $8 billion in the first quarter of the current fiscal and warned that it may need more funds from the government, given the flimsy housing market in the nation.

Accounting change
The need for more bailout funds has arisen primarily because of a change in accounting. New rules that came into force this year require companies to transfer all non-owned mortgages guaranteed by them onto their books.

This move alone led to $11.7 billion equity drop for the besieged Freddie and caused the net worth to plunge into the red.

The bailed-out mortgage-finance giant is apprehensive that the U.S. home prices would fall even further in the near future, which will lead to a significant increase in distressed sales.

Even though a mere change in accounting is to be blamed for Freddie’s net worth, continued infusion in the lender will only take it farther away from independence.

"It's significant because it does draw from the taxpayer, and the more taxpayer funds in Fannie and Freddie, the harder it will be ultimately to bring them out of conservatorship," observed Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington.

Drain on taxpayer’s money
Hitherto, the government has pumped in $50.7 billion in the company as assistance. The present request will take the total bailout money to $61.3 billion.

Estimates of the Congressional Budget Office reveal that the total strain on taxpayers for bailing out Freddie Mac and Fannie Mae will be to the tune of $389 billion through 2019.

"Without real GSE reform, the bailout of Fannie and Freddie will not stop, taxpayers will be forced to continue to dump hundreds of billions of dollars into the companies, and Fannie and Freddie will continue business as usual," said Rep. Spencer Bachus of the present scenario.

The bailed-out mortgage-finance giant is apprehensive that the U.S. home prices would fall even further in the near future, which will lead to a significant increase in distressed sales.

However, the company is committed on making its underwriting standards more stringent and thereby improving credit quality.

"Though more needs to be done, we are seeing some signs of stabilization in the housing market, including house prices and sales in some key geographic areas," Chief Executive Charles Haldeman.

"But as we have noted for many months now, housing in America remains fragile with historically high delinquency and foreclosure levels, and high unemployment among the key risks,” cautioned the CEO.