Wednesday, 12 December 2007

Freddie Mac to take another whack in 4Q07

Is anyone really surprised given WaMu's revelations that Freddie Mac (FRE) would be taking substantially bigger losses on their mortgage portfoilo? Well it seems the market was more than a bit surprised smacking FRE shares down more than -10% on Tuesday. From Bloomberg:

Freddie Expects 4th-Quarter Loss, Record Default Rate

Freddie Mac, the second-largest source of money for U.S. home loans, said it doesn't expect a ``quick fix'' for a mortgage market buffeted by record defaults, and may have a second straight quarterly loss of about $2 billion.

Freddie Mac didn't get any help today from the Federal Reserve, whose quarter-point cut in its benchmark interest rate failed to reassure investors that a recession could be avoided. Freddie Mac shares, down 52 cents before the announcement, fell $3.73, or 11 percent, to $31.31 on the New York Stock Exchange.

The housing market ``will get tougher before it gets better,'' Chief Executive Officer Richard Syron told investors at a conference in New York sponsored by Goldman Sachs Group Inc. ``We are not promising a silver bullet, a short-term quick fix.''

Fourth-quarter results ``are not going to be effectively better than'' the third-quarter net loss of $2.02 billion, or $3.29 a share, Syron said. Freddie Mac expects a 3 percent to 3.5 percent default rate in its mortgages, the worst since 1991, and reiterated a forecast for $10 billion to $12 billion in credit losses, according to slides accompanying Syron's speech.

...and while we are on the subject of failed government backed institutions, Fannie Mae (FNM) offered this somber outlook for the housing market:

The U.S. mortgage and housing markets are unlikely to fully recover until at least 2010, Fannie Mae Chief Executive Officer Daniel Mudd said today.

Finally someone is getting realistic about the housing market, although 2010 could turn out to be a bit early.

``The correction will begin to turn into recovery in late '09, when we start to see credit clear and liquidity restored,'' Mudd told investors at a conference sponsored by Goldman Sachs Group Inc. He cautioned that ``forecasting right now is fraught with peril.''

Fannie Mae, which last week sold $7 billion in preferred stock and cut its dividend by 30 percent, has enough capital for any of the ``scenarios'' it's expecting for 2008, Mudd said.

This is funny stuff, given that FNM did not expect the current scenario they now inhabit, should we really be concerned with them being able to handle any of the scenarios that they expect or should we be more worried about the scenarios they don't expect?