Freddie Mac Faces Subprime Loss up to $5 Billion

November 19, 2007 No Comments »

According to a research note released by Credit Suisse this morning, mortgage financier Freddie Mac may see a loss between $1 billion and $5 billion on its subprime AAA portfolio.

“While Freddie’s AAA subprime securities likely have substantial subordination, if the recent credit spread widening does not reverse over the coming quarters, we believe that Freddie could recognize an other-than-temporary impairment of between $1-5 billion,” the brokerage said in a research note.

Credit Suisse noted that the losses could force the government-sponsored entity to sell off parts of its portfolio, or raise capital through the issuance of preferred stock.

Shares of Freddie Mac were down $3.52, or 8.64%, to $37.20, marking a new 52-week low.

Meanwhile, Fannie Mae was downgraded to market perform from outperform, and saw its price target cut to $35 from $60.

“We now believe the stock will trade close to book value over the next few quarters due to the uncertainty of the impact from the continued deterioration in the housing market and rising credit losses,” said Friedman, Billings, Ramsey & Co.

Shares of Fannie Mae were down $2.66, or 6.54%, to $38.03 in midday trading, extending their near-week long slide.

Fannie Mae and Freddie Mac own or guarantee roughly 40 percent of the $11.5 trillion U.S. residential mortgage debt.

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