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Freddie Reports Big 2Q Loss; Shares Down 14%
Freddie said its provision for credit losses now stands at $2.5 billion, up from $1.2 billion in the first quarter.
August 6, 2008
US housing agency Freddie Mac posted a second-quarter loss of $821 million, or $1.63 a share, compared to net income of $729 million, or 96 cents a share, for the same quarter a year ago.
The second quarter loss follows a first-quarter loss of $151 million.
Freddie said its provision for credit losses now stands at $2.5 billion, up from $1.2 billion in the first quarter. The increased provision for losses is tied to a rise in delinquency rates, foreclosures and the estimated severity of losses driven by continued declines in home prices, the housing agency said.
“While we expect continued housing and economic weakness will affect our overall performance this year, we continue to maintain a surplus over all regulatory capital requirements,” Richard Syron, chairman and chief executive officer of Freddie Mac said in a prepared statement. He added that the housing agency remains committed to raising $5.5 billion of new capital and “will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate.”
Freddie Mac said total credit losses, consisting of net charge-offs plus REO, or real estate owned, operations expense, were $810 million in the second quarter, up from $528 million in the first quarter.
The housing agency tied to the credit deterioration to a drop in home prices and other declines in regional economic conditions, particularly in the North Central, Southeast and West regions of the US. "REO operations expense increased as a result of an increase in losses recognized on REO dispositions, due to the declines in home prices, coupled with higher disposition volumes in REO inventory, particularly in the states of California, Florida, Arizona, Virginia and Nevada," the company said.
Freddie shares declined $1.13, or 14%, to $6.91 on the heels of the earnings report.
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