Freddie Posts a Loss

Freddie Mac (FRE Quote) posted a fourth-quarter loss of $480 million as a result of interest-rate movements.

The government-sponsored mortgage company said realized losses and mark-to-market impacts on the company's credit guarantee portfolio, derivatives and administrative expenses more than offset net interest income and management and guarantee income.

Freddie Mac also reported a decrease in the fair value of net assets attributable to common stockholders, before capital transactions, in the fourth quarter of $200 million. Freddie said relatively tight mortgage-to-debt option- adjusted spreads generally limited attractive investment opportunities and the company began managing the portfolio under a growth limit announced in August 2006.

But Freddie blamed widening spreads, along with the effect of credit deterioration on the guarantee obligation and administrative expenses, for more than offseting the positive contributions from the company's investment and guarantee activities.

Freddie said it will boost its stock buyback by $1 billion to offset $1 billion in planned preferred stock issuance.

For the year, earnings rose to $2.2 billion, or $2.84 a share, from the year-ago $2.1 billion, or $2.75 a share.

Freddie Mac's regulatory core capital is estimated at $36.2 billion at Dec. 31, with an estimated $2.6 billion in excess of the 30-percent mandatory target capital surplus set by the Office of Federal Housing Enterprise Oversight.

The company's mortgage credit risk, as measured by the current loan-to- value ratio (LTV) of its credit guarantee portfolio and other credit characteristics, remained low. The company estimates that the credit guarantee portfolio had a LTV of 57% as of Dec. 31, compared with 56% for 2005, and the portfolio remains geographically well diversified. Long-term, fixed-rate mortgages constituted 82% of the credit guarantee portfolio, despite an increase in the purchase of variable- rate products, including non-traditional mortgage products, during 2006.

At Dec. 31, 2006, the company's $704 billion retained portfolio included $238 billion of non-agency mortgage-related securities, 96% of which were rated AAA or equivalent. Included in this amount were $124 billion of non-agency mortgage-related securities backed by subprime loans, of which more than 99.9% were AAA rated.