Freddie Mac Profits Plunge on Mortgage Loss
Freddie Mac, the home-mortgage lender, posted a 45 per cent plunge in second quarter profits as it was hit by a $320m loss on new mortgages.
The company reported net income of $764m, or $1.02 a share, compared with $1.4bn a year earlier, missing analysts’ expectations.
The disappointing figures come amid continuing weakness in the housing market, and the spread of problems orginating in the US subprime mortgage market to other areas of capital markets in the US and overseas.
Several hedge funds and money market funds have recently been hit by the effects of the subprime crisis.
Foreclosures and delinquencies have surged across the US in recent months, particularly among homeowners who took out subprime mortgages.
And a steady stream of mortgage lenders have filed for bankruptcy in recent weeks, darkening investor sentiment and fuelling nervousness.
Total revenue rose 4.8 per cent to $2.26bn, ahead of Wall Street estimates.
In June, Freddie Mac returned to quarterly reporting for the first time since an accounting scadal in 2003 forced it to restate $5bn in earnings.
The $320m loss largely reflects “credit deterioration on 2006 and 2007 loan originations” due to higher foreclosures and slowing home price increases, the company said.
Freddie Mac’s chairman and chief executive Richard Syron, said: “On the credit front we are seeing weakening, but we are well positioned relative to the overall marketplace to weather the ongoing disruptions in the mortgage markets and emerge as an even stronger player.”