Property | International

Housing recovery boosts Freddie Mac

US mortgage financier posts its fourth straight quarterly net profit as property market rebounds

  • Financial Times
  • Published: 13:55 November 8, 2012
  • Gulf News

Freddie Mac has posted its fourth straight quarterly net profit, underlining how the US property market has rebounded and the state-owned mortgage colossus is weening itself off its taxpayer life support.

The US mortgage financier recorded a $2.9 billion (Dh10.6 billion) third-quarter profit, representing a swing of about $7 billion from the loss it made in the same period last year, the company said on Tuesday.

It ended the period with a $4.9 billion positive net worth after paying the US Treasury its required $1.8 billion dividend, the second consecutive quarter it has not requested a bailout from US taxpayers.

The company benefited from rising house prices and lower defaults, which allowed it to reduce provisions for potential losses. Freddie Mac’s loan loss reserves for single-family loans stood at $33.3 billion on September 30, down nearly $6 billion from the end of last year.

Favourable market conditions

The company’s reserves for potential losses are easing as bubble-era mortgages are written off and higher-quality post-2008 home loans now comprise 60 per cent of its portfolio. Its bad loan reserves represent about a quarter of its soured mortgages, down from 32 per cent at the end of last year.

Donald Layton, Freddie Mac’s chief executive, said the results were “driven by favourable market conditions, including the continued improvement in the housing market, as well as our ongoing efforts to minimise losses on our legacy book”.

CoreLogic, a property data provider, said US home prices increased 5 per cent in September compared with last year, the largest annual increase in six years. The company said home prices may have risen even higher in October.

Freddie Mac’s recent string of quarterly profits is due in part to its tightened underwriting standards. Since the start of 2009, the company has been buying and guaranteeing loans given to borrowers with substantially higher credit scores who are putting more money down as a deposit at the time of purchase.

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