Tuesday, December 11, 2007

Freddie Expects 4th-Quarter Loss, Record Default Rate

Dec. 11 (Bloomberg) -- Freddie Mac, the second-largest source of money for U.S. home loans, said it doesn't expect a ``quick fix'' for a mortgage market buffeted by record defaults, and may have a second straight quarterly loss of about $2 billion.

Freddie Mac didn't get any help today from the Federal Reserve, whose quarter-point cut in its benchmark interest rate failed to reassure investors that a recession could be avoided. Freddie Mac shares, down 52 cents before the announcement, fell $3.73, or 11 percent, to $31.31 on the New York Stock Exchange.

The housing market ``will get tougher before it gets better,'' Chief Executive Officer Richard Syron told investors at a conference in New York sponsored by Goldman Sachs Group Inc. ``We are not promising a silver bullet, a short-term quick fix.''

Fourth-quarter results ``are not going to be effectively better than'' the third-quarter net loss of $2.02 billion, or $3.29 a share, Syron said. Freddie Mac expects a 3 percent to 3.5 percent default rate in its mortgages, the worst since 1991, and reiterated a forecast for $10 billion to $12 billion in credit losses, according to slides accompanying Syron's speech.

Falling home prices nationwide and rising foreclosures signal the housing slump that began in 2006 may extend into its third year, matching the slowdown 18 years ago that ended in the 1991 recession. Freddie Mac and larger rival Fannie Mae sold preferred stock and cut their dividends in the past three weeks in order to maintain enough capital to absorb potential losses.

The U.S. mortgage and housing markets are unlikely to fully recover until at least 2010, Fannie Mae Chief Executive Officer Daniel Mudd said today.

``The correction will begin to turn into recovery in late '09, when we start to see credit clear and liquidity restored,'' Mudd told investors at a conference sponsored by Goldman Sachs Group Inc. He cautioned that ``forecasting right now is fraught with peril.''