Freddie Mac Sees Another $5.5B to $7.5B in Losses

December 11, 2007 No Comments »

Freddie Mac Chief Executive Richard Syron said Tuesday that the mortgage financier will lose another $5.5 billion to $7.5 billion over the next few years as the mortgage crisis deteriorates and home loan defaults rise.

“I honestly think it’s going to get tougher before it gets better,” Syron said in a discussion with financial analysts in New York.

Virginia-based Freddie Mac lost $2 billion in the third quarter, and Chief Executive Syron said financial results aren’t expected to see any improvement in the fourth quarter.

“Our fourth-quarter results are not expected to be better than they were in the third quarter,” Syron added.

He also believes future credit losses will rise to between $10 and $12 billion, and sees national home prices falling by 10 percent from their peak, with greater losses in states like California and Florida.

“We would expect that our total future credit losses on our current book of business would total approximately between $10 billion and $12 billion,” he said.

Consequently, Freddie Mac also announced today that it will impose a 0.25 percent upfront fee on all new home loans it buys or guarantees with settlement dates starting March 9th, matching a similar move made by Fannie Mae last week.

On a $400,000 home loan, the new charge would equal $1,000, a cost many assume will be passed onto the borrower.

The charge is designed to boost fee income for the struggling government-sponsored entity who has been scrambling to raise capital after announcing record losses arising from record loan defaults.

Last month, Freddie sold $6 billion of preferred stock to raise capital and cut its quarterly dividend in half, the first cut since it became a public company in 1989.

Freddie Mac and Fannie Mae currently own or guarantee 40% of the $10.9 trillion residential mortgage market.

Shares of Freddie Mac fell 96 cents, or 2.73%, to $34.08 in afternoon trading on Wall Street.

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