Freddie Mac: $8.1 billion writedown

Government-backed mortgage finance firm becomes the latest to feel the bite of credit market woes as losses soar.

As Freddie Mac reported a rough quarter, the company's CEO said the troubled housing market will take time to turn around.

Mortgage financing firm Freddie Mac rocked the credit markets further Tuesday as it reported a large loss along with an $8.1 billion drop in the value of its assets, as it set aside $1.2 billion to cover credit losses.

The firm reported a net loss of $2 billion, or $3.29 a share, in the period, wider than the loss of $715 million, or $1.17 a share, a year earlier.

Analysts surveyed by earnings tracker Thomson First Call had forecast that Freddie would trim losses to 22 cents a share in the period.

Shares of Freddie Mac plunged about 13 percent in pre-market trading immediately following the report.

While problems in the mortgage markets have been well-known for months, it had been hoped that Freddie Mac, which buys securities backed by the safest form of mortgages, would be spared the worst of the problems.

But Tuesday's report shows that the problems appear to be spreading. Freddie said that 0.51 percent of its single-family home loans were 90 days or more delinquent in September, up from 0.42 percent in June.

Without doubt, 2007 has been an extremely difficult year for the country's housing and credit markets and, as our third quarter financial results reflect, we have been impacted by the deterioration in these markets, said a statement from Chief Executive Richard Syron. Freddie Mac is a housing finance company operating in what today is a troubled housing and credit market. It will take time for this market to turn around.

Longer term, Syron said, Freddie Mac's outlook should be helped by the move by lenders to fixed-rate loans and away from variable-rate loans made to riskier borrowers.

Still, the company's financial statements included further signs of trouble beyond the decreased value of its assets and the increasing hit from loan losses.

Freddie said in order to meet the mandatory target for capital surplus, it has hired Wall Street firms Goldman Sachs and Lehman Brothers to help it consider very near term capital-raising alternatives. It said it might also need to slash its dividend by 50 percent and that it could be forced to limit the growth or reduce the size of its retained portfolio, slow purchases into its credit guarantee portfolio or issue additional preferred or common stock.

On Nov. 9, the other government-sponsored mortgage finance firm, Fannie Mae, reported lower earnings that raised questions about its accounting. Shares of Fannie have fallen nearly 25 percent since that report, and Freddie had fallen nearly 15 percent during the same period through the close of trading Monday.

Source - CNN Money