The mortgage mess just got murkier. Government-sponsored lender Freddie Mac is reporting a net loss of $2 billion for the third quarter, and an $8.1 billion, or 25 percent drop, in the fair value of its assets. The announcement may dash the hopes of those in Congress and at the Treasury Department who saw Freddie Mac, along with Fannie Mae, as possible rescuers of the ailing housing market. The hefty losses may preclude the lender from increasing their purchases of mortgages, as some politicians had wished.
"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 Richard F. Syron, Freddie Mac's CEO, in a company statement. "We recognized the challenges facing the mortgage markets, however, and have taken further steps to address them. At the same time, as our charter mandates, we have continued to meet our mission by playing a stabilizing role in the markets and supporting our customers."
"Freddie Mac is a housing finance company operating in what today is a troubled housing and credit market," Syron continued. "It will take time for this market to turn around. But as it improves, we are optimistic about Freddie Mac's longer-term prospects. The market shift towards fixed rate originations and improved pricing and credit standards should position us well as the weakness in credit markets begins to improve and we are able to leverage our traditional strengths."
"Weakening house prices and deteriorating credit have hurt Freddie Mac's results, as well as those of other participants in the mortgage market," adds Buddy Piszel, CFO. "You can see the impact of these trends in our credit results and throughout our financial statements. Year-to-date, we have recognized $4.6 billion in net credit-related items on a pre-tax basis."
The lender also announced Tuesday that it has hired Goldman Sachs and Lehman Brothers to help it study raising capital and it may also cut its fourth quarter dividend by 50 percent.
Freddie Mac's announcement adds to the rash of bad news for the mortgage industry and housing sector. Over the past 24 hours, the National Association of Home Builders announced that builder confidence is still at an all-time low, new housing permits have hit a 14-year low, the subprime fallout claimed another CEO as H&R Block's Mark Ernst steps down, and D.R. Horton posted a $50 million net loss for the fourth quarter.