Mortgage finance company Freddie Mac said Wednesday that its first-quarter loss widened to $151 million as the U.S. housing market worsened, though the results were not as poor as expected. Its shares jumped on the news.
McLean, Va.-based Freddie Mac, the nation's second-largest buyer and backer of home loans, plans to raise $5.5 billion in new capital, following a similar move last week by Fannie Mae, its larger government-sponsored sibling.
It was the third straight quarterly loss for Freddie Mac, which lost $4.5 billion in the second half of 2007.
Moody's Investors Service downgraded the company's financial strength rating, projecting that Freddie Mac would be hit with as much as $7.5 billion in total losses from soured mortgages over the next two years.
Although critics say Freddie Mac and Fannie Mae pose a tremendous risk to the financial system should they collapse and require a government bailout, Freddie Chief Executive Richard Syron said losses from the mortgage mess would be manageable "under any reasonable scenario."
Company executives maintained their projection that average U.S. home prices would drop 15% from their peak but didn't rule out greater declines.
"It's clear we have not yet hit bottom in the housing market," Syron said.
Nevertheless, investors were encouraged that relaxed requirements by the company's federal regulator would allow Freddie Mac to play a larger role in the battered mortgage market. Also, Freddie Mac, unlike Fannie Mae, did not cut its dividend.
Freddie Mac's shares gained $2.29, or 9.2%, to $27.25.
The quarterly loss at Freddie Mac was larger than the year-earlier loss of $133 million. On a per-share basis, the loss was 66 cents, compared with 35 cents a year earlier.
Analysts surveyed by Thomson Financial had expected the government-sponsored company to lose 92 cents a share.
Revenue in the period rose to $1.53 billion from $694 million a year earlier.
Freddie Mac said it changed how it accounted for the value of derivatives, the complex financial instruments used to hedge against swings in interest rates. The company's financial picture improved as a result.
The company lost more than $1.3 billion on derivatives in the first quarter, compared with nearly $2.3 billion in the fourth quarter of 2007.
Freddie Mac said it set aside $1.2 billion for losses in the first quarter as a result of rising mortgage delinquency rates and falling home prices and sales.
Chief Financial Officer Anthony "Buddy" Piszel, however, cautioned that the company's losses from the mortgage mess were likely to continue through 2009.
Freddie Mac is expecting total losses from bad mortgages and foreclosed properties to hit $3.1 billion this year, or 0.16% of the total value of mortgages the company guarantees. That's up from an earlier projection of 0.12%.