Moody’s May Downgrade Freddie Mac Financial Strength Rating

January 10, 2008 No Comments »

Moody’s Investors Service said late Wednesday that it placed Freddie Mac’s “A-“ bank financial strength rating on review for a possible downgrade, saying the mortgage financier could face higher-than-expected credit losses.

The rating agency said it would “focus on Freddie Mac’s asset quality and the potential that the company may experience an elevated level of credit charges over the near to medium term,” according to a release.

“Moody’s will evaluate the level of loan loss provisioning as well as mark-to-market charges that Freddie Mac is exposed to, and how this would affect the company’s capital levels and earnings profile.”

Freddie recently pumped up its capital position through a $6 billion preferred stock sale and a dividend cut, and said it would put greater restrictions on the types of delinquent loans it buys from mortgage pools.

In November, the company reported its largest quarterly loss ever, chalking a $2 billion loss while setting aside $1.2 billion for bad loans in the third quarter.

Moody’s also affirmed Freddie Mac’s investment grade debt and stock ratings with a “stable” outlook, and said that any downgrade to its financial strength rating would not be enough to impact the other securities.

The bank financial strength rating measures the likelihood that an institution will need financial assistance from third parties.

Shares of Freddie Mac were down only 18 cents, or 0.66%, to $26.96, after falling as low as $25.31 earlier in the session.

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