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Freddie Mac Reports $676 Million Profit, Won’t Seek Treasury Aid
By Lorraine Woellert - May 4, 2011 6:45 PM ET

A shrinking inventory of delinquent loans and foreclosed properties helped government-owned mortgage finance company Freddie Mac post a $676 million first-quarter profit and avoid an infusion of Treasury Department aid.

Freddie Mac reported net worth of $1.2 billion for the three-month period that ended March 31 even after paying the Treasury $1.6 billion in quarterly dividends on the government’s nearly 80 percent stake, the company said today in a statement. The McLean, Virginia-based firm reported a $6.7 billion loss for the same period a year earlier.

The improved performance was attributed to lower provisions for credit losses, which fell for a fifth consecutive quarter to $2 billion from $3.1 billion at the end of December. Loan performance also improved, with serious delinquencies falling to 3.63 percent from 3.84 percent in the preceding quarter.

“That is a continuation of a trend, where the actual performance of the credits we guarantee is gradually improving,” Chief Financial Officer Ross J. Kari said today in an interview.

Loans made from 2005 to 2008 remain “the bulk of the challenge,” Kari said. That part of the portfolio is shrinking as loans are refinanced, modified or foreclosed, he said.

The company’s inventory of foreclosed homes fell by more than 6,900 units to 65,159 properties since December, the company said.

The quarterly profit was Freddie Mac’s second since being taken over by federal regulators in September 2008. The company posted a profit of $768 million in the second quarter of 2009 attributable partly to one-time accounting adjustments and didn’t ask for Treasury aid the following quarter.

“They still have this large backlog of non-performing loans,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “The best positive is that the inflow of bad loans appears to have stopped.”

Freddie Mac and its larger rival, Washington-based Fannie Mae, own or guarantee more than half of U.S. home loans. The federal government took control of the companies in September 2008 amid losses stemming from the collapse of the mortgage market. Since then, they have drawn $153 billion in federal aid to remain solvent amid soaring foreclosures and lagging home prices.

The Obama administration and Republican lawmakers in Congress are working on plans to wind down the companies as part of an effort to rebuild the U.S. housing-finance system.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.