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Freddie Posts Wide Miss

Like fellow government-sponsored entity Fannie Mae, it failed to live up to already dim expectations.
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Updated from 9:14 a.m. EST

Freddie Mac


on Thursday mirrored the dismal fourth-quarter results reported the day before by sister government-sponsored mortgage giant

Fannie Mae



Freddie posted a net loss of $2.45 billion, or $3.97 a diluted share, vs. a loss of $401 million, or 73 cents a diluted share, in the year-ago period. The losses were driven by $2.3 billion in mark-to-market losses on the company's credit derivatives portfolio. Analysts polled by Thomson Financial expected a loss of $2.34 a share.

For the full year, Freddie reported a net loss of $3.1 billion, or $5.37 a diluted share, compared to net income of $2.3 billion, or $3 a diluted share, for 2006. Analysts had expected a loss of $4.31 a share.

"Today's economy represents one of the most severe housing downturns in American history, and our results reflect that difficult environment as well as Freddie Mac's steadfast commitment to its important mission of providing liquidity, stability and affordability to the U.S. housing finance system," Freddie Chairman and CEO Richard Syron said in a company statement.

Fannie on Wednesday posted a fourth-quarter loss of $3.56 billion that also

widely missed Wall Street's meager expectations. But also like Fannie, Freddie's miss was blunted somewhat by news Thursday that a federal regulator overseeing the two companies was lifting restrictions limiting their growth set in place during accounting scandals earlier this decade.

The Office of Federal Housing Oversight said it would lift portfolio growth caps on retained mortgages portfolios. OFHEO also plans to gradually ease a requirement under a consent order that both companies maintain a cushion 30% higher than minimum capital requirements.

Fannie, in its earning release Wednesday, said it had completed the directives under the consent order. Freddie had completed most of its requirements, but still must separate its chairman and CEO roles, OFHEO said. Syron noted that Thursday's earnings report marked the company's return to an on-time financial statement.

Freddie shares were up 2% to $25.60 in Thursday morning trading.

Still, Syron said the company remains "extremely cautious" in its outlook for 2008.

"If the economy weakens substantially from here -- a possibility for which we need to be prepared as a company -- it will have a further negative effect on homeowners across the country and drive credit costs higher," he said. "However, we have taken the steps to add capital, tighten our management of credit risk and institute pricing policies that are more consistent with the risk we bear. These actions should help us build the business for the future."

This article was written by a staff member of