Freddie Mac executives believe the GSE has passed an important milestone regarding the firm's 2005 to 2008 books of business that could lead to a much stronger financial performance in its single-family business going forward.
Most of the GSE's credit losses are tied to 2005-2008 legacy mortgages. Freddie has already set aside $73.2 billion for credit losses – including $10.7 billion last year.
“While loans originated in 2005 through 2008 will give rise to additional losses that have not been provisioned for, we believe that as of December 31, 2011, we have reserved for or charged-off the majority of the total expected losses on these loans,” Freddie says in its new annual report.
The 2011 annual report also notes that the 2005-2008 books comprise only 38% of its guaranteed loan portfolio. And its profitable 2009-2011 books of business now make up 51% of the single-family portfolio.
Despite the shrinking pool of legacy loans, Freddie executives said they expect the single-family business will report another loss in 2012.
“We believe that the management and guarantee fees associated with originations after 2008 will not be sufficient to offset the future expenses associated with our 2005 to 2008 guarantee issuances for the foreseeable future,” the report says.
Freddie reported a $10 billion loss on its single-family guarantee business in 2011, down from $16.3 billion in the prior year.
This reduction in losses is “primarily due to a decline” in the provisioning for credit losses, Freddie said.
