More Trouble in the Housing Industry

[Jul 2, 2007.]

The name "Freddie Mac" has become synonymous with home-buying—and with good reason. The organization represents the second-largest buyer and guarantor of home mortgages. In other words, if you own a home, chances are good that you've had some dealings with Freddie Mac.

The housing slump that has affected much of the U.S. in recent months has been a concern for many analysts. On the heels of this, this month, Freddie Mac reported a first quarter loss of a staggering $211 million. Experts blamed the loss on the decline in the value of the financial instruments Freddie Mac utilizes to protect against variations in interest rates.

Freddie Mac lost 46 cents per share in the first quarter of the year, which ended March 31. That's in sharp contrast to the $2 billion profit the government-sponsored company earned last year. That $2 billion amounted to some $2.80 per share. It should be noted that Freddie Mac was hit with an accounting scandal of its own, which could have also eroded confidence in the institution.

Interestingly enough, the recent report represented the company's first on-time filing of a quarterly report in five years. The timeliness of the report indicates that Freddie Mac may, in fact, be headed in the right direction, despite its recent losses.

It should be noted that Freddie Mac's earnings, at this point, don't fully reflect the impact of the current housing crisis, which has resulted in record foreclosures across the U.S. Commenting on the situation, Freddie Mac chairman and CEO Richard Syron stated that Freddie Mac's "credit position has remained strong relative to our historical levels and the market as a whole."

Based on Syron's statement, it would seem that Freddie Mac may have just been going through a rough patch as far as its earnings are concerned.

Julie Ann Amos
July 2nd 2007
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