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Freddie Mac loss swells amid mortgage crisis

Freddie Mac, the second-biggest provider of U.S. residential mortgage funding, said on Thursday its loss widened more than expected to $2.5 billion in the fourth quarter as the housing crisis worsened.
/ Source: Reuters

Freddie Mac, the second-biggest provider of U.S. residential mortgage funding, said on Thursday its loss widened more than expected to $2.5 billion in the fourth quarter as the housing crisis worsened.

A sharper-than-expected drop in home prices that first sparked a crisis in subprime mortgage lending since last summer tainted the entire U.S. housing market, hurting Freddie Mac and its rival Fannie Mae. Fannie Mae said on Wednesday it posted a $3.6 billion loss.

As the U.S. housing crisis worsened, rising delinquencies and foreclosures have forced the companies to write down the values of mortgage securities they own and boost reserves to cover their guarantees of payment on bonds held by investors.

Shares of Freddie Mac fell 1 percent to $24.85 in trading before the market opened.

Freddie Mac lost $3.97 per share in the fourth quarter, far more than analysts had expected.

The government-chartered company said its net loss increased from $401 million in the year-earlier period. It is coming off a $1.2 billion loss for the third quarter that was revised from $2 billion after an accounting change.

Citing the "severe" housing downturn, Freddie Mac increased its estimate of total credit losses by a combined $1.5 billion for 2008 and 2009. It now expects losses of $2.2 billion and $2.9 billion for the next two years, respectively.

"We will be cautious going into the year because we think 2008 will be a very telling year as to where the credit market is going," Buddy Piszel, Freddie Mac's chief financial officer, told Reuters.

Credit-related expenses were $912 million for the quarter, while total credit losses were $236 million.

McLean, Virginia-based Freddie Mac, which was chartered by Congress in 1970 to boost U.S. homeownership, is struggling to strike a balance between growing its business while tightening underwriting guidelines to protect itself from further losses.

The federal regulator for Freddie Mac and Fannie Mae on Wednesday lifted restrictions on the growth in the companies' combined $1.4 trillion mortgage portfolios, giving them more flexibility to support the ailing housing market. But dire predictions for delinquencies and foreclosures this year will probably keep the companies conservative with their capital, analysts said.

"We won't be aggressively growing at this point but at the same time we may be able to take advantage of some market opportunities," Piszel said.

Wall Street analysts had expected the company would post a fourth-quarter loss of $2.48 per share, and a $3.05 per share loss including special items, according to Reuters Estimates.