Freddie Mac (FRE) swung to a first-quarter loss as the mortgage company took more than $1 billion in losses on its interest-rate hedging activities.
The McLean, Va., government-sponsored enterprise lost $211 million, or 46 cents a share, for the quarter, reversing the year-ago profit of $2 billion, or $2.80 a share. Net assets attributable to common stockholders, before capital transactions, posted a $300 million decline.
"While the full impact of the housing downturn has not been felt, our credit position has remained strong relative to our historical levels and the market as a whole," said CEO Richard F. Syron.
Lower net income, year over year, was primarily due to higher mark-to-market losses on the company's portfolio of derivatives and on the company's single-family credit guarantee business.
Revenues generated by the company's retained portfolio and credit guarantee portfolio declined modestly from first-quarter 2006, as a decline in net interest income was partially offset by increased management and guarantee income. Expenses increased mainly as a result of higher administrative costs associated with improving the company's internal financial reporting and controls infrastructure, and higher credit costs.
Worsening expectations for mortgage credit risk had an adverse impact on the company's GAAP and fair value results. The majority of this effect was due to mark-to-market losses associated with wider credit spreads on mortgage assets in the company's guarantee portfolio.
Overall, Freddie Mac's credit guarantee portfolio continued to exhibit credit characteristics that were better than historical averages as measured by current delinquencies, loan-to-value ratio and charge-offs.