The current rate for a 30 yr. fixed note is somewhere between 3.5% to 4.5%. When compared to the average rate of 7% and an adjustable rate at another 3%-5% (which was vastly the most popular product sold in the early to mid 2000's), it is easy to see why there would be little to no profits after a note refis into the current average rate.
An obvious assumption would be the unequivocally large amount of foreclosures in our current housing bust. However, a surge in refi’s through the HARP program has produced a crippling effect on profit margins through the last quarter. One refi alone averages a loss in $2,500.00 per month to Freddie Mac. HARP also projects another 1 million refis over the next year as an attempt to contain the already massive looming shadow inventory.
So, if the treasury prints off another $6 billion to bail another GSE out of despair again, who is the gambler that is buying the bonds that will back this note? China? Right. The more concerning issue over the failing Freddie Mac is the continuance of stretching the dollar until it is worth less than the paper it is printed on….
But, I guess that's a whole different ball of wax.
But, I guess that's a whole different ball of wax.
Freddie Mac Requests $6B More in Taxpayer Aid
11/03/2011BY: CARRIE BAY
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The nation’s second largest mortgage company is asking the U.S. Treasury for another $6 billion in capital support after posting its largest quarterly loss in over a year.
Freddie Mac said Thursday that it recorded a net loss of $4.4 billion for the quarter ended September 30, 2011, compared to a net loss of $2.1 billion over the previous three-month period and $2.5 billion for the third quarter of 2010.
The McLean, Virginia-based GSE explained that while its latest earnings results reflect net interest income of $4.6 billion, the company shouldered a $4.8 billion loss on derivatives and a $3.6 billion provision for credit losses.
Freddie Mac’s CEO Charles E. Haldeman, Jr. pointed out that hundreds of thousands of borrowers refinanced into lower mortgage rates or shorter mortgage terms in the third quarter. Long-term interest rates declined by approximately 125 basis points in the third quarter, compared to a decrease of about 30 basis points in the second quarter.
“[T]he borrowers we helped to refinance will save an average of $2,500 in interest payments during the next year,” Haldeman said.
While the savings bode well for homeowners and should help to ensure those who were struggling to make their payments will remain current, it means less money coming in for the GSE, resulting in higher loss severity rates and thus the recorded increase in Freddie Mac’s provision for credit losses.
Such losses will likely grow over the coming quarters with the administration’s retooling of the Home Affordable Refinance Program (HARP), which is expected to allow another 1 million borrowers with loans backed by Freddie Mac and sibling Fannie Mae to take out new mortgages at today’s rock-bottom rates.
The GSEs’ are expected to issue guidance about the HARP changes to their mortgage servicers by November 15.
Freddie Mac says the increase in its third-quarter credit loss provision was also driven lower expectations for mortgage insurance recoveries, as a result of the deteriorating financial condition of certain mortgage insurers used by the company.
Freddie’s $4.4 billion loss in the third quarter combined with the $1.6 billion dividend payment it made to Treasury for past bailout money left the GSE with a $6 billion net worth deficit as of the end of September. To eliminate this deficit, the Federal Housing Finance Agency (FHFA), as conservator, is submitting a draw request to Treasury for the same amount.
The company’s Q3 draw is the largest quarterly request since the first quarter of 2010, and brings the cumulative amount of Freddie Mac’s taxpayer-supported bailout to $72.2 billion. The GSE has returned $14.9 billion to Treasury in the form of cash dividends.
Freddie Mac’s single-family serious delinquency rate was 3.51 percent as of the end of September, nearly unchanged from 3.50 percent at mid-year, but the company says its rate remains “substantially below industry benchmarks.” The GSE also stressed that new single-family business acquired after 2008 continues to demonstrate stronger credit quality.
Freddie Mac says it helped approximately 48,000 struggling borrowers avoid foreclosure in the third quarter, finding home retention solutions – including loan modifications, repayment plans, and forbearance agreements – for three out of every four. The GSE completed 11,744 short sale and deed-in-lieu transactions over the three-month period.
Freddie carried $127.9 billion in non-performing assets as of the end of September, including single-family and multifamily loans that have undergone a troubled debt restructuring, are seriously delinquent, in foreclosure, and REO. That figure represents 6.6 percent of the company’s total mortgage portfolio.
The GSE’s REO operations expense skyrocketed to $221 million in the third quarter, compared to $27 million for the second quarter. REO operations expense primarily consists of costs incurred to maintain foreclosed properties, valuation adjustments on properties, disposition gains or losses, and recoveries from credit enhancements, such as mortgage insurance.
Freddie Mac says the increase in REO operations expense last quarter was primarily driven by higher REO holding period write-downs as fair values declined during the third quarter, as well as a reduction in projected recoveries on mortgage insurance.