Freddie Mac posts 45% fall in profit/Freddie Mac profits plunge on mortgage loss

Freddie Mac posts 45% fall in profit
By Saskia Scholtes in New York
Copyright The Financial Times Limited 2007
Published: August 31 2007 03:00 | Last updated: August 31 2007 03:00


Freddie Mac, one of two US government-sponsored home mortgage lenders, posted a 45 per cent plunge in second quarter profits yesterday, as it took a $320m loss on its mortgage portfolio.

The company reported net income of $764m, or $1.02 a share, compared with $1.4bn a year earlier.

The decline reflected higher than expected credit losses on mortgages originated in 2006 and 2007, which Freddie Mac attributed to a jump in fore-closures amid the "deteriorating housing environment". The $320m credit loss was up from $179m in the first quarter of 2007, and five times the $63m of credit losses that the company declared for the second quarter of 2006.

The company's shares had fallen 5.03 per cent to $60.07 by the close in New York.

Freddie Mac's chairman and chief executive Richard Syron said: "On the credit front we are seeing weakening, but we are well positioned relative to the overall marketplace to weather the ongoing disruptions in the mortgage markets."

The agencies do not lend directly to home buyers, but rather operate in the secondary market, buying mortgages that fit their lending criteria and often repackaging them into mortgage-backed securities. These agency MBS instruments are still seen as relatively safe in a market that has been rocked by the subprime mortgage turmoil.

Late mortgage payments and defaults have surged across the US in recent months, particularly among borrowers that took outprivate-label, or non-agency, subprime mortgages. The problems have resulted in a swathe of bankruptcies for such lenders, and a ripple effect of losses for investors around the globe. Freddie's results show that mortgage lenders with more stringent underwriting standards are also beginning to suffer from the housing downturn.

However, many analysts see the government-sponsored agencies - Freddie Mac and Fannie Mae - as uniquely positioned to make longer-term gains from the US housing downturn, as they are less exposed to the most problematic subprime mortgage loans.





Freddie Mac profits plunge on mortgage loss
By Anuj Gangahar in New York
Copyright The Financial Times Limited 2007
Published: August 30 2007 14:49 | Last updated: August 30 2007 14:49


Freddie Mac, the US home mortgage lender, on Thursday reported a 45 per cent plunge in second-quarter profits as it was hit by a $320m loss on new mortgages.

The company reported net income of $764m, or $1.02 a share, compared with $1.4bn a year earlier, missing analysts’ expectations.

The disappointing figures come amid continuing weakness in the housing market, and the spread of problems orginating in the US subprime mortgage market to other areas of capital markets in the US and overseas.

Several hedge funds and money market funds have recently been hit by the effects of the subprime crisis.

Foreclosures and delinquencies have surged across the US in recent months, particularly among homeowners who took out subprime mortgages.

And a steady stream of mortgage lenders have filed for bankruptcy in recent weeks, darkening investor sentiment and fuelling nervousness.

Total revenue rose 4.8 per cent to $2.26bn, ahead of Wall Street estimates.

In June, Freddie Mac returned to quarterly reporting for the first time since an accounting scadal in 2003 forced it to restate $5bn in earnings.

The $320m loss largely reflects ”credit deterioration on 2006 and 2007 loan originations” due to higher foreclosures and slowing home price increases, the company said.

Freddie Mac’s chairman and chief executive Richard Syron, said: ”On the credit front we are seeing weakening, but we are well positioned relative to the overall marketplace to weather the ongoing disruptions in the mortgage markets and emerge as an even stronger player.”