Government sponsored mortgage lender Freddie Mac said Thursday it lost $0.46/share in Q1 2007, having made $2 billion in the year-ago quarter. Analysts were looking for EPS of $1.01. It was the company's third straight quarterly loss. The company blamed the surprise loss on mark-to-market trading losses in its derivatives portfolio, losses on its single-family credit guarantees, and credit-spread widening. It is the first quarter in which the company has reported since a 2003 accounting scandal. In February Freddie Mac said it will cease buying subprime mortgages and those with a "high likelihood" of default. Freddie Mac and its larger competitor Fannie Mae have about $170 billion in subprime mortgage-backed securities. It its press release, CEO Richard Syron said: "While the full impact of the housing downturn has not been felt, our credit position has remained strong relative to our historical levels and the market as a whole." CFO Buddy Piszel commented on the EPS loss: "While significant mark-to-market losses on our portfolio of derivatives, which are used to hedge our interest-rate risk, and on our credit guarantee activities have resulted in a GAAP loss, we remain encouraged with the underlying fundamentals of Freddie Mac's business." Shares are down 2.3% YTD, but are up 15.3% over the past year.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Another Perfect Storm Brewing: Government Underwritten Contingent Liabilities • Fannie, Freddie and WaMu Spearhead Subprime Borrower Help • Housing Double Dips Offer Short Opportunities
Stocks/ETFs to watch: Freddie Mac (FRE). Competitors: Fannie Mae (FNM)
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