Interest-Rate Risk Pushes Freddie Mac Into the Red

McLEAN, Va. – Secondary mortgage market giant Freddie Mac reported a 50 basis points drop (0.5%) in long-term interest rates caused it to lose $550 million for the third quarter, and the second-largest purchaser of home mortgages expects to report a loss for its fourth quarter, too. The shift in long-term rates caused the company to write-down the fair market value of its derivatives and guarantee transactions. The third quarter loss compares to a gain of $880 million for the third quarter of 2005. Still, the continuing mortgage boom allowed Freddie to boost earnings for the first three quarters to $2.5 billion, up from $1.4 billion for the first nine months in 2005. The 2005 results included charges for settling a shareholder lawsuit related to the company’s ongoing accounting scandal, costs associated with the restatement of financials, and losses related to Hurricane Katrina.