The company also reported a decrease in the fair value of net assets attributable to common stockholders, before capital transactions, of approximately $8.1 billion for the third quarter of 2007, compared to an increase of approximately $300 million for the same period in 2006.
"Without doubt, 2007 has been an extremely difficult year for the country's housing and credit markets and, as our third quarter financial results reflect, we have been impacted by the deterioration in these markets," Richard F. Syron, Freddie Mac chairman and CEO, says in a statement. "We recognized the challenges facing the mortgage markets, however, and have taken further steps to address them.
Other bad news from the government-sponsored mortgage company: its capital surplus has fallen to its lowest levels in seven years and it might be forced to cut its dividend. The market immediately responded to the news. Freddie Mac shares fell $10.76, or 28.7%, to $26.74 yesterday after the report on the much wider than expected loss.
The $3.74 per share loss for the most recent quarter was worse than even the most pessimistic forecasts, Fred Ruffy, analyst with the investor education firm Optionetics, notes. "This news has rekindled concerns about the outlook for Freddie Mac, Fannie Mae and the entire mortgage industry," he tells GlobeSt.com. "Freddie Mac and Fannie Mae help provide liquidity to the mortgage industry by buying back loans and repackaging them into securities for sale in the capital markets. Faced with capital constraints, other mortgage lenders will find the environment more challenging. Countrywide Financial, for example, has stopped selling subprime mortgages and now focuses activity on loans backed by Freddie and Fannie."
Not by coincidence, Countrywide's shares hit a low of $8.21 a share midday Tuesday on market chatter about liquidity problems and possible bankruptcy, Ruffy says. "Although the stock recovered to $10.28 after the company said on CNBC it had nothing new to report, the violent sell-off reflects the ongoing worry and fear that investors feel with respect to financial companies with heavy exposure to the mortgage industry."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
