Freddie Mac Earnings Plunge in 2nd Quarter

[Sep 27, 2007.]

Freddie Mac, which ranks number 2 in the nation in terms of buying home mortgages, saw its earnings plummet 45% in the 2nd quarter.

The home loan giant had to earmark more than $300 million on account of bad loans. The company, which is based in Virginia, is symptomatic of the housing crisis which has rocked the real estate and construction industries over the past year.

More than four dozen lenders have gone bankrupt as a result of the problems in the mortgage industry. Once the news of the 2nd quarter losses broke, shares in Freddie Mac declined 5% to $60.07.

According to officials at Freddie Mac, delinquency rates are rising on both the East and West Coasts, in addition to the economically-damaged Midwest, where unemployment is rampant. The problem appears to have spread from the subprime market to other sectors of the mortgage industry.

Freddie Mac reports that losses from loan defaults increased to 0.02% in the 2nd quarter. The increases are expected to continue into 2008. Freddie Mac makes its earnings from interest payments as well as fees from mortgages that have been sold to investors.

Freddie Mac made $764 million during the quarter ending June 30th. That amounts to $1.02 a share. Last year, profits were in the neighborhood of $1.4 billion, which amounted to $1.93 per share.

Congress formed Freddie Mac and Fannie Mae to help funnel dollars in to the home mortgage sector by purchasing loans from financial institutions and combining them into securities which could then be sold to investors. Freddie Mac and Fannie Mae finance approximately 2/3 of all home mortgages in the U.S. Democrats on Capitol Hill have proposed hiking the individual limit for home mortgages the two companies are permitted to purchase in order to help improve the state of the mortgage sector.

Julie Ann Amos
September 27th 2007

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