Accounting Changes Hide Freddie's Flaws

Now, Freddie and Fannie are viewed as sources of stability in secondary mortgage markets, where credit has largely dried up amid the steepest declines in U.S. home prices on record since the Great Depression. The implicit backing of the U.S. government for both companies, which was reinforced by the Federal Reserve's willingness to help JPMorgan Chase (JPM Quote) buy and save Bear Stearns (BSC Quote) from bankruptcy in mid-March and extend emergency credit lines to investment banks, allows them to bring much-needed liquidity to the shell-shocked credit markets. (Investment banks like Citigroup (C Quote), Merrill Lynch (MER Quote) and Lehman Brothers (LEH Quote) have posted billions in losses on investments tied to the mortgage market.)

Foreclosures on the Rise

Meanwhile, conditions in the housing market are only getting worse. RealtyTrac reported Wednesday that U.S. foreclosure filings climbed 65% in April while bank seizures more than doubled from a year earlier as rates on adjustable mortgages increased and deserted homes added to the burgeoning inventories of unsold homes in various markets around the country.

On Tuesday, the National Association of Realtors reported that median prices for a single-family home fell 7.7% in the first quarter, the biggest drop in at least 29 years, and there were 4.06 million U.S. homes for sale at the end of March -- an increase of 40,000 from the prior month.

Mortgage foreclosures "contribute to already bloated inventories of homes for sale, and put downward pressure on home values,'' said RealtyTrac CEO James Saccacio.

Despite the deteriorating market, Freddie reported a net loss for the first quarter of $151 million, or 66 cents a share, compared with a loss of $133 million, or 35 cents a share, in the same quarter last year. The loss was much less severe than the 92 cents per-share loss analysts were expecting, according to consensus estimates reported by Thomson Reuters. Its revenue more than doubled to $1.53 billion.