Rising interest rates helped government-sponsored mortgage repurchaser Freddie Mac boost second quarter earnings, but managers expect declining interest rates will inflict a “significant reversal” of such gains in the third quarter.

Freddie Mac today released preliminary results for the first half of the year, estimating the company generated $1.2 billion in net income in the second quarter and $2.7 billion for the year. Freddie Mac’s latest projection of year-to-date net income is up about $300 million from an earlier estimate at the end of July. Most of the boost in net income — about $200 million — came from adjustments in Freddie Mac’s mortgage guarantee business.

Net income “benefited significantly from mark-to-market gains recorded for its guarantee asset and derivatives, as interest rates increased during the first half of the year,” the company said in a press release. But given that interest rates have fallen about 50 basis points since June 30, Freddie Mac expects to report “a significant reversal” of such gains in the third quarter.

Richard F. Syron, Freddie Mac’s chairman and chief executive officer, said the company is “managing credit and interest-rate risks prudently, achieving low funding costs, maintaining our strong capital base and building close ties with our business partners — all of which strengthens our franchise.”

The loan-to-value ratio of mortgages guaranteed by Freddie is in the mid-50th percentile, with long-term, fixed-rate mortgages continuing to comprise more than 80 percent of the credit guarantee portfolio. Through July 2006, interest-only mortgages made up 14 percent of year-to-date purchases, and were 3 percent of the total credit guarantee portfolio. Payment-option, adjustable-rate (option ARM) mortgages accounted for 3 percent of year-to-date purchases and are 2 percent of the total credit guarantee portfolio.

Freddie “continues to expect near-term credit losses to remain low by historical standards” with the total single-family delinquency rate at 52 basis points as of July 31, 2006. That compares to 69 basis points as of Dec. 31, 2005, and 73 basis points as of December 2004.

Freddie Mac continues a $2 billion common stock repurchase, having repurchased 25.5 million shares at an average price of $58.82, or about $1.5 billion in common stock.

The company’s share of government-sponsored mortgage securitizations was approximately 43 percent through August, compared with 45 percent at the same time last year and 41 percent in 2004. Freddie’s $707 billion retained portfolio decreased at a rate about 1 percent per year in the “absence of financially attractive buying opportunities during the first half of the year.” Freddie’s credit guarantee portfolio grew to $1.4 trillion, or an annual growth rate of about 11 percent.

Freddie Mac, which suspended regular quarterly financial reports in the wake of an accounting and management scandal, said the company continues to plan to resume those reports after it releases its 2006 results. Managers recently updated the Office of Federal Housing Enterprise Oversight on those plans, and have contracted with JPMorgan Worldwide Securities Services for transaction processing and record-keeping services for its retained portfolio. JPMorgan on Monday began providing Freddie Mac with custodial services for its liquidity and contingency portfolios, the company said.

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