Freddie Mac, the second-largest US mortgage-finance company, posted its fourth straight quarterly loss Wednesday as record delinquencies drove up credit costs and said that it would cut the common-stock dividend. The second-quarter net loss of $821 million, or $1.63 a share, compares with the 54-cent a share average loss estimate of nine analysts in a Bloomberg survey. The dividend will be reduced to 5 cents from 25 cents. Freddie has plunged 76 percent this year in New York trading on concern the company may not have enough capital to overcome loan delinquencies on the $2.2 trillion of mortgages it owns and guarantees. The worries prompted the US. Treasury Secretary Henry Paulson to shore up Freddie and the larger Fannie Mae. The Freddie chief executive, Richard Syron, committed to raise $5.5 billion in equity though failed to complete the sale as the stock slumped. “Home prices have declined and have hurt them as has the decrease in home sales,” said Credit Suisse's Moshe Orenbuch, the top-ranked analyst covering the company. “What you need for this stuff to work it's way through is for homes to get through the foreclosure process and be sold.” Orenbuch, based in New York, has an “underperform” rating on Fannie and Freddie. The second-quarter net loss is Freddie's fifth in the past six quarters. The company reported net income of $764 million, or $1.02 a share, in the year-earlier period. Fannie and Freddie, government-sponsored enterprises created to boost mortgage financing, own or guarantee 42 percent of the $12 trillion US home loans outstanding. The worst housing market since the Great Depression caused the quality of Freddie's assets to deteriorate. Freddie has projected credit losses of 12 basis points or $2.2 billion for this year and 14 basis points or $2.9 billion in 2009. Orenbuch said he expects Freddie's credit losses to rise to 20 basis points this year and 29 basis points in 2009. Freddie in November halved its dividend and sold $6 billion in preferred stock to offset writedowns and losses on mortgages it owns or guarantees. Washington-based Fannie since December has raised about $14.4 billion in preferred and common stock. Paul Miller, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia estimates that both companies will need to raise as much as $15 billion more to keep investors happy. Miller predicted that the benefits of rising interest rates would boost the value of guarantees on mortgage bonds and derivatives used as hedges for its holdings may prompt Freddie to report net income of 50 cents a share, changing estimate from a loss of 63 cents.
