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Freddie’s Earnings Skyrocket, Net Worth at Almost $5 Billion

NOV 6, 2012 9:13am ET
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On the morning of a presidential election that could very well determine its fate, Freddie Mac posted stellar gross earnings of $5.6 billion and then turned around and paid its owner, the U.S. Treasury Department $1.8 billion in dividends.

The secondary market giant, a ward of the government for 50 months, also boasted a positive net worth of $4.9 billion, adding that “No additional Treasury draw” is required.

However, its results also suggest that the mortgage giant is living off of the refi boom: In 3Q its secondary market acquisitions supported home purchases of 1.4 million units, but 5.6 million of refinancings.

In the prior quarter Freddie earned $2.9 billion in gross or what it calls “comprehensive” income. Comprehensive income excludes dividends it must pay to the U.S. Treasury, plus other calculations.

On a net income basis, Freddie earned slightly more in 2Q than 3Q noting that decline “primarily reflects an increase in the provision for credit losses related to single-family loans, partially offset by lower derivative losses. The increase in comprehensive income for the third quarter of 2012, compared to the second quarter of 2012, primarily reflects fair value gains on the company’s nonagency available-for-sale (AFS) securities due to spread tightening.”

It adds: “The fair value of Freddie Mac’s AFS securities may fluctuate considerably from quarter to quarter due to market conditions, which can lead to variability in the company’s comprehensive income results.”

But a quick look at the details of its earnings show that Freddie’s portfolio shrinkage is starting to affect its results: in 2Q it posted net interest income (on its holdings) of $4.4 billion compared to $4.3 billion in the third quarter.

When a new president is elected one of the most important financial issues facing him–outside of reducing the nation’s deficit–will be the future of Freddie and its sister company Fannie Mae.

Proposals floated have ranged from eliminating them altogether through a slow wind down or creating many smaller GSEs that engage in public/private partnerships.

Most mortgage bankers agree that the industry, as it stands today, cannot survive without a government-backed mortgage market to insure a majority of production.

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