Mortgage giant Freddie Mac 8.375 PFD (OTC:FMCKJ) (OTC:FMCCS) does not need additional Federal aid to maintain its business operations after reporting $3 billion net income during the second quarter of 2012. According to the company, earnings improved due to the $1.7 billion decrease in provisions for credit losses. Freddie Mac 8.375 PFD (OTC:FMCKJ) (OTC:FMCCS) noted positive trends in the housing market.
Its current net income is much higher compared with its $577 million net income during the first three months of 2012. During the first quarter, Freddie Mac required $19 million in financial aid from the government. Its net interest income was $4.4 billion, lower compared with the $4.5 billion interest income last quarter.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
The company also reported a $2.9 billion comprehensive income for the current quarter, compared with its $1.8 billion comprehensive income during the first quarter this year. Freddie Mac’s derivative losses declined from $3.82 billion last year, to the current $882 million. As of January 30, its net worth is $1.1 billion.
Reuters noted in its report, since the 2008 financial crisis, the current quarter is the fifth time the company did not request any additional financial assistance to keep its business operations afloat. The company managed to pay $1.8 billion to the Treasury Department this quarter. Freddie Mac borrowed a total of $72.3 billion dollars from the Treasury Department. The company repaid 28 percent, or $20.1 billion as of June 30, 2012. The company is required by the government to pay 10 percent dividends.
In a statement, Donald H. Layton, CEO of Freddie Mac said the second quarter financial result enabled the company to avoid borrowing additional taxpayers money from the Treasury Department. He said the company continued its work during the second quarter, to help more than 350,000 families to take advantage of the low interest rates, and 40,000 others to avoid foreclosures.
Since 2009, the company has helped 5.2 million borrowers to refinance their mortgages, 700,000 homeowners to avoid foreclosures, as well as applying more than $1.5 trillion trillion in cash to the housing market in purchases, providing loans, and mortgage related securities.
The company also said the rate of seriously delinquent family loans declined from 3.51 percent during the first three months of the year, to 3.45 percent in the second quarter. Its delinquency rate is far lower than the 7.44 percent serious delinquency rate on first-lien single-family loans of the U.S. mortgage market, based on the Mortgage Banker’s Association National Delinquency Survey.
Freddie Mac 8.375 PFD (OTC:FMCKJ) (OTC:FMCCS), and its sister company Fannie Mae M/A 8.25 PR S (OTC:FNMAS) (OTC:FNMAT), own or guarantee 60 percent, or approximately 31 million home loans in the United States worth more than $5 trillion. Both companies purchase home loans from banks and other lenders. They package the loans into bonds, with a guarantee against default, and sell the loans to investors worldwide. During the 2008 financial crisis, many homeowners defaulted on their loans because they lost jobs and could not afford their monthly payments, or their mortgage is higher than the worth of their homes.
Fannie Mae and Freddie Mac collapsed because of guarantees. According to analysts, the housing market is improving slowly.