Freddie Mac FHLMC Reports After 2 Years

FHLMC finally reported after 2 years plus, and it was not pretty. Expect a fall out on FNMA and other mortgage related stock as well. From BuisnessWeek...

The earnings of mortgage giant Freddie Mac dropped nearly 60 percent in the first half of the year amid continued volatile interest rates as it emerged from its accounting crisis.

The second-largest U.S. buyer of home mortgages reported Wednesday that its net income fell to $1.64 billion, or $2.22 a share, in January-June from $4.07 billion, or $5.74 a share, in the same period last year.

The government-sponsored company has been untangling a $5 billion misstatement of earnings -- mostly underreported -- for 2000-2002. McLean, Va.-based Freddie Mac had not submitted a quarterly financial report since it discovered the accounting problems in June 2003.

The earnings report was issued after the close of regular trading. Freddie Mac's shares rose 38 cents to $60.38 in regular trading on Wednesday on the New York Stock Exchange but were down 48 cents to $59.90 in after-hours trading.

Freddie Mac said the earnings decline was due mainly to a drop in interest income and to losses from changes in the value of financial instruments, known as derivatives, that it uses to hedge against interest-rate and other risk. Interest income is expected to continue to decline this year, the company said.

In the first quarter, profit fell to $875 million, or $1.19 a share, from $1.3 billion, or $1.82 a share, in the same period last year. Second-quarter earnings slid to $769 million, or $1.03 a share, from $2.7 billion, or $3.91 a share, a year earlier.

For the first six months, the $2.22 in per-share earnings came in below analysts' forecast of $3.48, according to Thomson Financial.

Freddie Mac and Fannie Mae were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street.

They have grown dynamically in recent years and now stand behind $4 trillion of home mortgages, representing more than three-fourths of the single-family mortgages in the country.

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