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Sat Apr 30, 2016, 09:38 AM

Freddie Mac may need another taxpayer bailout next week

(MarketWatch) Freddie Mac is expected to report a loss when it announces first-quarter earnings before the bell on Tuesday. That’s bad news for any public company, but especially critical for the mortgage provider because of its tangled history with the federal government.

Freddie and its counterpart, Fannie Mae were put into conservatorship in 2008 as the mortgage meltdown ensnared the financial system. They have lingered as wards of the state ever since. The Treasury Department modified the deal in 2012, requiring Fannie and Freddie to send all quarterly profits to the government — and shrink their reserves to zero by 2018.

As Mel Watt, the chairman of Fannie and Freddie’s regulator, put it in a speech in February, Fannie and Freddie are quickly approaching the point where they won’t be able to weather quarterly losses without going back to the Treasury for taxpayer dollars.

There are many reasons Freddie and Fannie could lose money in any given quarter, Watt noted, including the fact that the enterprises now stand to make less income on the portfolios they’re required to shrink. What many analysts are watching for this time, though, is the use of interest-rate derivatives. ..............(more)


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