Freddie Mac, sucked into the downward spiral of the U.S. housing and mortgage markets, reported a loss of $2 billion for the third quarter and said it is "seriously considering" a 50% cut in its fourth-quarter dividend. Freddie also said it is considering ways to raise additional capital.
Freddie's results were worse than the $1.4 billion loss recorded 11 days ago by the company's bigger rival, FANNIE MAE. Losses at Fannie and Freddie constrain their ability to perform their role of funneling money into the mortgage market when other investors are leery of home loans, said Jim Vogel, an analyst at FTN Financial Capital Markets, Memphis, Tenn. Though Fannie and Freddie remain huge sources of funding for mortgages, their woes could prolong the shortage of capital that is forcing lenders to ration credit and hurting demand for housing.
Freddie had a loss of $715 million a year earlier. The loss for the latest quarter reflects a provision for credit losses of $1.2 billion. In addition, the company marked down assets by $3.6 billion to match the current depressed market levels. Freddie said it has hired Goldman Sachs and Lehman Brothers to help it "consider very near-term capital-raising alternatives." Last week, Fannie raised $500 million with a sale of preferred stock.
The two government-chartered companies own or guarantee a combined $4.8 trillion of U.S. home mortgages, or nearly half of those outstanding. They get fees for guaranteeing payments on mortgage-backed securities held by others but must reimburse holders of those securities when borrowers default. Falling home prices worsen the losses they face in disposing of homes acquired through foreclosures.
Source: MultifamilyBiz.com