Fannie Mae and Freddie Mac reported a losing quarter for the first time in four years and the Federal Housing Finance Agency or FHFA believes that the two will most likely need a shot in the arm from the Treasury capital.
Mel Watt, director of FHFA, released a statement on Tuesday detailing the report of mortgage company Freddie Mac that it registered a third quarter loss of $475 million which is the first time it happened in over four years. In a report by Realtor.com, Watt outlined, "Volatility in interest rates coupled with a capital buffer that will decline to zero in 2018 under the terms of the senior preferred stock purchase agreements with Treasury will likely make both Enterprises increasingly susceptible to the possibility of quarterly losses that could result in draws going forward."
Freddie Mac points to the changes in interest rates as the culprit for their loss. According to their report, the said fluctuations affected the derivative values they hold. In the statement of the FHFA director, Freddie Mac did not report a drop in the credit quality of losses linked to credit. Fannie Mae and Freddie Mac was placed in government conservatorship after the financial crisis of 2008 and both its status remains undecided with reforms stuck in Congress.
According to The Wall Street Journal, the net worth of Freddie Mac is $1.3 billion which means despite its $475 million loss, it is not required to get bailed by taxpayers' money. However, the loss still raises a red flag about the ability of Freddie Mac to stay healthy for a long time. Recent years have been kind with the increasing rates of properties and lesser defaults on mortgages raising the profitability of both Freddie and Fannie Mae. But the heydays are starting to slowdown and it is only a matter of time before these companies will seek help from the government.
