Feeling the full brunt of the housing and credit market woes, Freddie Mac this morning posted a second-quarter net loss of $821 million, a hefty increase from its $151 million net loss in the first quarter of 2008.
What a difference a year can make; just 12 months ago, Freddie Mac posted net income of $729 million for the second quarter of 2007. Since then, it's been all downhill.
As delinquency and foreclosure rates increased through the second quarter of 2008, and ongoing declines in home prices led to major losses by homeowners and lenders, Freddie Mac more than doubled its provision for credit losses from the first quarter to $2.5 billion.
The McLean, Va.-based financial giant also took impairments of $1.0 billion on its available-for-sale securities in the second quarter--most of the losses related to securities backed by subprime, alt-A, and other loans with deteriorating performance.
Freddie Mac did manage to post a $731 million increase in net interest income in the second quarter, which pushed the company's total quarterly revenues up to $1.69 billion from $1.53 billion in the first quarter. But its credit-related expenses soared to $2.8 billion from $1.4 billion in the first quarter and just $463 million in the second quarter of 2007.
As the housing crisis continues unabated, worries about the solvency of the two government-sponsored mortgage finance behemoths has pushed the companies' share prices down considerably. Freddie Mac's stock closed Monday trading at $8.04 per share. In August 2007, Freddie's stock traded at $67.20 per share.
Fannie Mae also is off its 52-week high of $70.57, closing Monday at $13.60 a share.
Freddie Mac's second quarter results were announced at 6:30am Wednesday and caused its stock to fall even further in before the bell trading on Wall Street. Fannie Mae is set to announce its second quarter results Friday.
With Fannie and Freddie holding or guaranteeing more than 40 percent of the nation's mortgages, and many economists and financial experts recently questioning their financial solvency, the federal government was compelled to act, passing H.R. 3221, the Housing and Economic Recovery Act of 2008, which establishes a new entity to regulate Freddie and Fannie and allows the Treasury Department to grant unlimited credit to the entities.
Freddie Mac's leadership came under fire this week in a New York Times article when former officials questioned CEO Richard Syron's judgement in ignoring warning signs on bad mortgages. Freddie fought back by releasing a detailed response.
Ethan Butterfield is senior editor at BUILDER magazine.