Freddie Mac Seeks Bailout, Despite Increased Profits

NEW YORK (MainStreet) — Despite news from Freddie Mac (Stock Quote: FRE) this week that suggests a return to profitability for the federally backed mortgage lender, its future remains in question.

First, the government-sponsored enterprise (GSE) announced, via its Primary Mortgage Market Survey, that national 30-year fixed-rate mortgages averaged under 5% for the week ending Feb. 25. The average of 4.95% is down from 5.0% last week. (The BankingMyWay Weekly Mortgage Rate tracker currently has the average interest rate on a 30-year loan at 5.06%.)

Rising inflation and a drop in home sales account for the loss, says Frank Nothaft, chief economist at Freddie Mac. "Fixed mortgage rates eased again this holiday week amid mixed inflation data reports,” he said. “Although the core consumer price index for January rose slightly above the market consensus, house prices fell 4.1% in the fourth quarter of 2010 compared to the same period in 2009, according to the S&P/Case-Shiller National Index. In addition, the level of the index was the lowest since the fourth quarter of 2002.”

In short, “low mortgage rates and home prices are sustaining affordability in the housing market,” as Nothaft notes.

Freddie Mac also reported a surprisingly strong set of performance numbers for the fourth quarter of 2010: The mortgage titan posted earnings of $1.2 billion for the quarter. Still, the profit was short-lived as the company had to fork over $1.6 billion to the Treasury Department in the form of dividend payments.

With this in mind, Freddie Mac has already gone to the U.S. government to ask for $500 million more in taxpayer-funded aid.

With tts current net worth a meager $401 million as of Dec. 31, 2010, the $1.6 billion dividend payment that the company handed over to the government nearly wiped it out. Another big bailout from the taxpayers should alleviate that, Freddie says in its Q4 financial statement.

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