The government rescued Freddie Mac, based in McLean, Va., and sibling company Fannie Mae in September 2008 after huge losses on risky mortgages threatened to topple them. A federal regulator controls their financial decisions.
Taxpayers have spent about $169 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates it could cost up to $51 billion more to support them through 2014.
Freddie Mac and Washington-based Fannie Mae own or guarantee about half of all U.S. mortgages - nearly 31 million home loans worth more than $5 trillion. Along with other federal agencies, they backed nearly 90 percent of new mortgages in the last year.
Charles E. Haldeman Jr., Freddie's chief executive, said many homeowners were refinancing at lower mortgage rates or were shortening the terms of their mortgages. Though that saves homeowners money, it is pushing Freddie deeper into the red.
"In fact, borrowers we helped to refinance will save an average of $2,500 in interest payments during the next year," Haldeman said.
For Freddie, the losses are temporary because interest rates will remain low for the foreseeable future, said Jim Vogel, an interest-rate specialist at FTN Financial.
Still, homeowners continue to default on their mortgages. Unemployment remains high at 9.1 percent, and the percentage of those who are late by 90 days or more on their monthly mortgage payments was virtually unchanged at 3.51 percent in the July-September quarter.
Another reason Freddie needs more assistance is because it received less money from mortgage insurers.
Many riskier mortgage loans require insurance, which is meant to protect lenders and investors from losses if a homeowner defaults and the lender does not recoup costs through foreclosure. The borrower pays a monthly premium for the insurance, typically a set percentage of the total mortgage loan. But when those mortgage insurers fail, they pay out less in claims.
For example, the main subsidiary of the private mortgage insurer PMI Group was seized by Arizona insurance regulators last month. That followed heavy losses incurred after the housing market collapsed. PMI is now paying claims at just 50 percent.
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default, and then sell them to investors worldwide.
When homeowners default - either because they are unable to afford the payments or because they owe more than the property is worth - Fannie and Freddie must pay for the losses.
