Interest-Rate Risk Pushes Freddie Mac Into the Red

Register now

McLEAN, Va. - Secondary mortgage market giant Freddie Mac reported a 50-basis-point 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.

Freddie Mac said it hopes to return to the process of providing regular quarterly financial reports, as required of all publicly owned companies, sometime in the first quarter. (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER