Freddie Mac asks U.S. for $10 billion as losses pile up

By Jia Lynn Yang

Freddie Mac, the bailed-out mortgage-finance giant, reported Wednesday that it continues to lose money and needs an additional $10.6 billion in assistance from U.S. taxpayers.  The most recent earnings report follows three straight quarters in which the McLean-based company did not need infusions from the Treasury. Still, the firm is struggling to recover from the mortgage-market meltdown; it reported a net loss of $6.7 billion in the first quarter of 2010, compared with a loss of $9.9 billion a year ago.  Freddie Mac is turning to the Treasury again mostly because of a change in accounting. Revised rules that took effect this year require companies such as Freddie to move all mortgages they guarantee — but don’t own — onto their books. This shift alone caused the company’s equity to drop by $11.7 billion, helping to plunge its net worth into the red.  Under the terms of Freddie’s September 2008 bailout, taxpayers make up the shortfall in any quarter when the firm’s net worth is negative. The accounting change, along with the firm’s loss and a $1.3 billion dividend payment to the Treasury, pushed Freddie’s net worth to a negative $10.5 billion, down from a positive $4.4 billion last year. Even though the accounting change explains most of the company’s negative net worth, Freddie is still a long way from independence, and a new infusion of Treasury funds could put the company deeper in the hole.  “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,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington.