Mortgage repurchaser Freddie Mac reported a first-quarter loss of $211 million Thursday, which the company attributed primarily to losses on derivate investments it uses to hedge against changing interest rates.
The loss amounted to 46 cents per share, compared with net income of $2 billion, or $2.80 per share, for the same period in 2006.
Freddie Mac helps mortgage lenders make loans by repurchasing mortgages on the secondary market, and by guaranteeing loans securitized and sold on Wall Street.
The company reported 16 percent annualized growth in its guarantee portfolio, to $1.5 trillion, and 6 percent growth in its retained portfolio. At $714 billion, the retained portfolio remains $9 billion below a voluntary cap Freddie agreed to maintain while it overhauled its books in the wake of an accounting and management scandal.
Thursday’s report marked a return to regular quarterly financial reporting — five years after the scandal broke.
“We’re making measurable progress on our financial remediation program, and we are confident that we will be timely with our release of full-year-2007 results within 60 days of year end,” said Buddy Piszel, chief financial officer, in a statement. Piszel said Freddie Mac is now in positions to begin the Securities and Exchange Commission registration process in mid 2008.
The company posted mark-to-market losses totaling $1.2 billion on non-interest income, largely tied to the value of its derivative portfolio. Freddie Mac uses derivatives to manage interest-rate risk in its retained portfolio. Losses are recorded immediately, while potential future gains aren’t reflected in the report.
Credit-related expenses, including provisions for credit losses and real estate-owned operations expense, were $193 million in the first quarter of 2007, compared with $60 million in the first quarter of 2006, the company said.
The increase “largely reflects deteriorating credit on 2006 mortgage purchases that have exhibited higher transition rates from delinquency to foreclosure and higher loan loss severities associated with slower home-price appreciation and higher unpaid principal balances,” the company said. Freddie Mac said it expects future charge-offs to increase from today’s “very low levels.”