Mortgage financier Freddie Mac took a step toward issuing common and preferred stocks to help bolster its balance sheet on Friday when the Securities and Exchange Commission (SEC) accepted its registration statement filed earlier in the day.
Freddie has committed to raising at least US$5.5 billion in capital amid a turbulent time for it and fellow mortgage giant Fannie Mae.
The pair have been hit hard over the past year by mounting losses tied to the downturn in the mortgage market and the government was forced to step in over the weekend to reassure Wall Street of the companies’ solvency.
Washington-based Fannie Mae raised US$7.4 billion earlier this year in a bid to strengthen its balance sheet.
McLean, Virginia-based Freddie Mac had indicated plans to raise US$5.5 billion, but has been waiting to initiate the offerings because its stock is not yet registered with the SEC.
“We have committed to [the Office of Federal Housing Enterprise Oversight] to raise $5.5 billion of new core capital through one or more offerings, which will include both common and preferred securities,” Freddie said in a statement.
“The timing, amount and mix of securities to be offered will depend on a variety of factors, including prevailing market conditions, and is subject to approval by our board of directors,” it said.
Freddie Mac reported a first-quarter loss in May of US$151 million and said it set aside US$1.2 billion for losses as a result of rising delinquency rates and falling home prices. Moody’s Investors Service has downgraded Freddie’s financial strength rating, projecting up to US$7.5 billion in losses from soured mortgages over the next two years.
Friday’s filing paves the way for the issuance of new stock.
The filing does not guarantee Freddie will issue shares, but Freddie indicated in the filing that was one option it is considering to help improve capital ratios.
Apart from issuing new stock, Freddie said it was considering limiting growth in its portfolio, or reducing the size of the portfolio and lowering its quarterly dividend.
Fannie and Freddie hold or back US$5.3 trillion of mortgage debt, about half the outstanding mortgages in the US.
Analysts widely agree that the sustainability of Freddie and Fannie is vital to helping prevent the already battered real estate market from getting worse.
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