Freddie Mac Loses $2 Billion, Needs Cash

Government-sponsored mortgage lender Freddie Mac, the second largest U.S. mortgage company, posted a $2 billion loss for the third quarter and warned that it may not have enough cash to cover its mortgage commitments.

“It’s as bad as it possibly could be,” said Howard Shapiro, an analyst at Fox-Pitt Kelton in New York told Bloomberg, as he downgraded the lender to “sell.”

Government-sponsored mortgage lenders Freddie Mac and Fannie Mae were considered “less vulnerable in the housing crisis because have had less exposure to high-risk, subprime mortgages,” said the Associate Press.

“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 chairman and chief executive officer in a 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. 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.”

Freddie Mac and Fannie Mae account for 40% of the U.S. home loan market, and the losses will mean that less cash will be available for new loans.

“There is nothing we see right now to be more optimistic,” Chief Financial Officer Anthony Piszel told Bloomberg. He told analysts on a conference call that the fourth quarter “is not going to be pretty.”

Freddie Posts Loss, May Cut Dividend; Shares Plunge [Bloomberg]
FREDDIE MAC REPORTS THIRD QUARTER 2007 NET LOSS OF $2.0 BILLION OR $3.29 PER DILUTED SHARE [Freddie Mac]
$2 Billion Freddie Mac Loss [AP]
(Photo:Carol T. Powers/Bloomberg News)

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  1. HRHKingFriday says:

    Oh snap! Now they know how the people getting foreclosed on feel. Or their neighbors who lost half their property values.

  2. Bay State Darren says:

    And you say this a government operation that did this? Shocking!

  3. pinkbunnyslippers says:

    They’ll just fire half the company and then post a profit in Q4. lol

  4. pinkbunnyslippers says:

    And btw I don’t think Freddie is “owned” by the government. They’re just a government *sponsored* entity

  5. ARP says:

    So are you going to let your tax dollars bail them out? Many were opposed to helping any individuals who got in trouble with their tax money. What about Freddie Mac?

  6. Meg Marco says:

    @pinkbunnyslippers: Yep, my bad.

  7. mookiemookie says:

    GSE’s like Freddie Mac have an implied guarantee that the government will indeed bail them out if they become insolvent. They’re so large that if they went under, it would cost the American taxpayer a whole heck of a lot more.

  8. bohemian says:

    If you stop and look at this like some big war game scenario. Lenders write bad loans and the crazy economy causes people to default. Banks take back homes through forclosure. Nobody can get a loan because banks won’t or can’t extend credit. So now people don’t live in the houses, the banks own them. Where do all the people who don’t live in those houses now go? Think large nationwide scale?

    Will banks own most of the properties and just rent them out?

  9. RagingBoehner says:

    @bohemian: Banks hate owning property. They will sell them at the highest bidder even if that means taking a loss because they are not in the landlord business. Eventually, that will restore balance to the market because there’s always demand for houses just not necessarily at the peak prices we’ve seen in the past few years.

  10. azntg says:

    @RagingBoehner: You never know, this subprime lending business might make banks rethink their roles and join the real estate business (which I seriously hope not!)

  11. wezelboy says:

    @RagingBoehner: Yes, but if the banks aren’t lending, then the only people who will be able to buy are those who have cash. Given the current savings rate, that isn’t many people.

  12. HRHKingFriday says:

    @bohemian: Think about the scale of growth they would need to invest in to rent out give or take, a million homes. A friend of mine is in the Apartment Industry and it takes a an army of staff to run it. Its hard enough playing landlord to a bunch of glorified dorm rooms, let alone foreclosed houses. Have you read about how badly the homes have been damaged? And how bad the crime is getting in the hardest hit neighborhoods?

    It would be tempting, and I could see a small town bank doing it. But none of the major banks. Besides, an Ohio judge ruled against a major banks foreclosure because of how much that particular loan had been passed around in derivative investment accounts.

    The real winner, I think, will be condo and apartment companies. Apartment companies are gobbling up former and foreclosed condos at rock bottom prices.

  13. rhombopteryx says:

    @mookiemookie:

    and

    @Arp:

    So why is it that people repeat that Freddie Mac (or Fannie Mae) are getting an “implied” govt. bailout, or “tax money”? This is a pretty common misunderstanding, but they don’t hold govt. guarantees and don’t have access to tax $. Both are “not backed or funded by the US Government, nor do the securities they issue benefit from any government guarantee or protection.” Why spread the FUD?

  14. royal72 says:

    i lost $200 at the casino last week, can i have some cash too?

  15. Nemesis_Enforcer says:

    Banks out here in Socal are being completly idiotic about trying to sell foreclosures. My friend and I went to a auction last week for 8 homes. None of them started at anything less than 500k. The banks are trying to sell them for the amount of the loan they lost. Hello! If no one is buying and even if they wanted to they can’t get a loan who are you trying to sell to?

    My Mother in law bought her house in 94 on foreclosure at $120k now its valued at 900k.

  16. iamme99 says:

    It’s foolish to buy anything now. Real estate and this credit crunch is a LONG way from bottom. Add in $100/barrel oil and a continually falling dollar and this is a good time to sit in cash. As Buffet and others have said over time, the best time to buy something is when no one else wants it.