Industry NewsMortgage

Freddie Mac sees credit losses quadrupling in 2008

Losses will make buying jumbo loans a challenge
Published on Feb 28, 2008

Freddie Mac lost $2.5 billion in the fourth quarter, forcing the company to cut dividends by 50 percent, issue $6 billion in preferred stock, and reduce the size of its loan portfolio to meet regulatory capital requirements. Declining long-term interest rates required Freddie Mac to recognize a $2.3 billion reduction in value of derivative investments used to hedge against interest-rate changes. Provisions for credit losses on bad loans and sales of real estate-owned properties totaled $912 million, also taking a toll on the company's bottom line, the company said. But fees the company made from securitizing and guarantying mortgage loans during the fourth quarter were up 10 percent from a year ago, to $698 million. Over the long run, Freddie Mac Chief Executive Officer Richard Syron said he expects "robust growth" in the guarantee business, along with better returns resulting from tightened underwriting standards and increased fees. "It is essential to note that a sign...

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