Freddie Mac, the second largest US mortgage finance company, said on Monday that it would need an additional $1.8bn from the US Treasury Department, as souring home loans continue to saddle it with losses. The company said it lost $6bn, or $1.85 a share, in the second quarter. That marked a sharp increase from the same period a year ago, when it lost $840m, but was improved from the first three months of the year.
Charles Hadelman, Freddie chief executive said, that the company “continues to support the still-fragile housing market by providing America’s families with access to affordable home financing and foreclosure alternatives” but that the market still faces real challenges.
Fannie Mae and Freddie Mac, the large mortgage finance companies that have been hit by souring home loans, will delist their shares from the New York Stock Exchange for failing to meet minimum price guidelines.
Fannie and Freddie were taken over by the government in 2008 amid a collapse in home prices and are now 80 per cent owned by US taxpayers. Large shareholders include Vanguard, Blackrock and California’s state pension fund. The companies’ stock will instead trade on the over-the-counter market, known as the pink sheets.
As the US Treasury releases data on major foreign debt holders, the Council for Geoeconomic Studies has a cautionary tale on the foreign ownership of debt. Hank Paulson apparently claims Russian officials approached the Chinese in the summer of 2008 suggesting both countries sell off large amounts of debt issued by Fannie and Freddie. The Chinese apparently declined (see chart).
CGS warns on the dangers of relying on foreign banks to buy one’s debt. In addition to food security and energy security, should we now fret about debt? Maybe the Japanese have the right idea, encouraging their menfolk to buy bonds….
Following Tim Geithner’s testimony on Tuesday, George Soros writes:
The business model of Fannie Mae and Freddie Mac is fundamentally unsound. These public-private partnerships were supposed to serve the public interest and the interest of shareholders. But this was never properly defined and reconciled…
Reuters has an interesting piece on critics of the Obama administration’s Christmas Eve plan to extend unlimited credit lines to Fannie and Freddie. Critics, including Dennis Kucinich, the Ohio Democrat who is perhaps the most liberal member of the House, called the move a “backdoor Tarp”.
With no limit on the credit line, Fannie and Freddie would be free to buy toxic assets from banks, clearing their books and leaving US taxpayers with the bill, critics argue.
“Investors view this as shockingly bad news”: one assessment of Dubai’s request for a freeze on all financing to Dubai World, the government’s heavily indebted flagship holding company. The requested freeze would last till May 30, and would cover DW’s troubled property unit Nakheel, which is due to pay back $4bn on an Islamic bond on December 14. Dubai sovereign CDS spreads rose 130bps from an overnight level of 318 and LSE shares fell – the exchange has a 20 per cent stake in Borse Dubai.
Meanwhile the “gold up, dollar down” trends continue. Sri Lanka has bought 10 tonnes of gold from the IMF
The Fed wants a clean break from the mortgage-backed security market. It will complete its current purchase programme. But then it wants to stop completely, writes Krishna Guha