Freddie Mac loss bigger than expected; dividend slashed
— -- It's the fourth quarterly loss in a row for the company, a government-sponsored entity designed to buy mortgages on the secondary market from lenders.
The magnitude of the loss, five times worse than what Freddie reported for the first quarter of 2008, stems from the general rise in home foreclosures compounded by the decline in securities made up of subprime mortgages. The collapse of subprime-backed securities has already forced the world's biggest banks to write off more than $200 billion over the past 12 months.
"We are confident the actions we are taking are strengthening Freddie Mac's financial and competitive position as well as its ability to serve the American homebuyer and will generate value well into the future," said CEO Richard Syron in a statement.
But critics contend that Syron's not doing enough. Freddie's share price continues to drop — down 18% at $6.57 in late afternoon trading — eroding its capital base. Syron says he doesn't want to raise more capital now, which would dilute the holdings of current shareholders.
"That value's already gone," says Paul Miller of FBR Capital Markets. "They need capital and they need it fast."
In a conference call Wednesday morning, Freddie executives said they would hold steady or even cut back on the company's existing loan portfolio, which could make mortgages even more expensive for aspiring homeowners. The Bush administration and Congress have expressed concern over the health of Fannie and Freddie this summer, noting that any problems sustained by those institutions could worsen the economic problems currently facing the nation.
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