WASHIINGTON–Freddie Mac is expected to report a loss when it announces first quarter earnings sometime today.
Like Fannie Mae, Freddie Mac continues to be operated under conservatorship after having been taken over by the government in 2008 during the mortgage meltdown. Since 2012, the Treasury Department has modified both secondary market organizations to send all quarterly profits to the government and to shrink their reserves to zero by 2018.
Mel Watt, who chairs the Federal Housing Finance Agency, which regulates Fannie and Freddie, has warned that the two companies are approaching the point where the diminished reserves mean neither organization will be able to survive additional losses without receiving new help from the federal government.
Analysts will be watching today to see whether Freddie’s losses are the result of interest-rate derivatives, which it has used in the past as a hedge against interest rates, and which have led to prior losses for Freddie Mac. In Q3 of 2015, for instance, Freddie reported a $475-million loss as the result of a decline in interest rates.
It is expected that Freddie will hold $1.2 billion in reserves in 2016, and that that figure will shrink to $600 million in 2017 and zero by 2018.
Fannie Mae reports its first-quarter earnings on Thursday.