Freddie Mac Earnings Hit by Mortgage Losses

Freddie Mac, the government-sponsored home-mortgage lender, Thursday posted a 45% drop in Q2 net income, taking a $320 million charge on potential mortgage losses. Freddie Mac and rival Fannie Mae don't buy many so-called subprime loans, the market for which has imploded due to waning investor confidence, but they do buy portfolios secured by 'top-rated' subprime loans, which should be least vulnerable to default losses. Many feel the current market turmoil is a positive for the government-backed companies, because investors are more likely to bid up the securities they package out of fear of investing in other, less robust securities. The $320 million loss reflects "credit deterioration on 2006 and 2007 loan originations" due to higher foreclosures and lagging home prices, the company 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," CEO Richard Syron said (see full earnings call transcript later today). Net income was $764 million ($1.02/share) on revenue of $2.26 billion, compared with $1.4 billion ($1.93/share) on revenue of $2.15 billion a year ago. Analysts were expecting EPS $1.15 on revenue of $1.68 billion. Net interest income fell 17% to $973 million. Freddie Mac and Fannie Mae own or guarantee about 40% of the $10.9 trillion residential home loan market. On Aug. 10, their regulator, the Office of Federal Housing Enterprise Oversight (Ofheo), refused to relax restrictions on the size of their loan portfolios, despite pressure from some (full story) who felt increasing their caps might ease a shrinking credit market (full story). Shares are down 4.7% in pre-market trading to $60.80.

Sources: Press release, Wall Street Journal, MarketWatch, Bloomberg
Commentary: Subprime Mortgage Lenders Don't Need Help From Fannie and Freddie -- Bernanke • No Bids In Corporate Bond Market
Stocks/ETFs to watch: FRE. Competitors: FNM

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Comments

[Jordan Fogal:]

All these are NOT subprimes or sum bag investors. Many are caused by defective houses and arbitration clauses, leaving the middle class in ruins.

Our homes are being taken from us and the builders are hiding behind the albatross of the arbitration atrocity.
Oversight Testimony
Written Testimony Submitted by Jordan Fogal To The Subcommittee on Commercial and Administrative Law “Mandatory Binding Arbitration Agreements: judiciary.house.gov/Ov... - 154k -

Court house doors are blocked. www.cityviewmag.com/st...

Consumer confidence is at an all time low. See our pictures, the real reasons for our foreclosures. We are responsible citizens and these are crooks: constructing defective, substandard housing and hiding behind arbitration clauses.

www.myspace.com/jordan....

Finally, someone does some investigative journalism
www.msnbc.msn.com/id/2.../


The Consumerist - New York,NY,USA
: We did not understand the true ramifications of arbitration, or it's unfairness. No one who has not been caught in this snare does. ...
See all stories on this topic

2007 Sep 03 03:14 PM