Summary
- First quarter net loss of $151 million, or $0.66 per diluted share; narrows from fourth quarter 2007 net loss of $2.5 billion, or $3.97 per diluted share.
- Provision for credit losses of $1.2 billion for the first quarter reflects increases in delinquency rates and estimated severity of losses driven by declines in home sales and home prices.
- First quarter results benefited from lower mark-to-market losses related to the elimination of losses on certain credit guarantees as a result of the company's adoption of SFAS 157, adoption of the fair value option (SFAS 159) and implementation of hedge accounting.
- Estimated regulatory core capital was $38.3 billion at March 31, 2008, an estimated $6 billion above the 20 percent mandatory target capital surplus.
- Strong guarantee revenue growth was driven by higher average PC volumes and a higher total guarantee fee rate in the first quarter. Guarantee and net interest income revenue growth expected to be 15 to 20 percent and 40 to 50 percent, respectively, for full-year 2008.
- The company expects to raise $5.5 billion in new core capital in the near future through one or more offerings to include common stock and non-convertible preferred securities.
- Company has returned to timely quarterly financial reporting, remediated all remaining material weaknesses in internal control over financial reporting and is moving ahead with the SEC registration process.
Freddie Mac (NYSE: FRE) today reported a net loss of $151 million, or $0.66 per diluted common share, for the quarter ended March 31, 2008, compared to a net loss of $133 million, or $0.35 per diluted common share, for the quarter ended March 31, 2007. The company reported a net loss of $2.5 billion, or $3.97 per diluted common share, for the fourth quarter of 2007.
"Market and credit conditions remained challenging during the first quarter of 2008," said Richard F. Syron, chairman and chief executive officer. "This stress is particularly evident in our increased credit-related expenses. However, Freddie Mac on the whole had a better first quarter than what we experienced in the third and fourth quarters of last year, which were significantly impacted by credit and interest rate related marks. We showed strong momentum in market share, business volumes, margins and total revenue.
"In this trying time for our housing market, and the economy as a whole, I am especially pleased that our company continues to serve its mission by being a consistent, reliable provider of affordability, liquidity and stability to the nation's housing financing system," Syron continued. "Among many other things, we're serving this vital role by using the new authority provided by Congress to support the jumbo mortgage market, making a meaningful and positive impact on spreads in the MBS market and exploring constructive and creative ways to work out loan modifications for distressed homeowners.
"In the near future, we plan to raise $5.5 billion in new core capital," Syron added. "We are already deploying our available capital to make the most of the excellent opportunities we see in the current market, which will serve our mission at a time when most sources of liquidity for the struggling housing sector have dried up. This additional, fresh capital will enable us to do even more to serve our mission and build long-term, durable shareholder value."
"Throughout the first quarter, Freddie Mac struck a careful balance of managing risk and seizing business opportunities," said Buddy Piszel, chief financial officer. "We continued to make prudent provision for credit losses, monitor our credit book closely and maintain our disciplined approach to managing interest-rate and other risks. Our credit guarantee business saw strong, high quality growth -- and as the quarter ended, we also were able to significantly ramp up our mortgage purchase commitments for the retained portfolio.
"It's important to note that we began the year with a larger capital cushion compared to a year earlier, and during the quarter we put that capital to work, providing critically needed liquidity to the market and delivering attractive returns on equity for our business," Piszel said. "Our plan is to raise new capital that will not only enable us to continue to serve our mission and meet the housing market's needs in this time of stress, but also to deploy that capital in a way that enhances business flexibility and strengthens our capital position.
"We also made progress on a number of other important fronts, including beginning our registration process with the Securities and Exchange Commission and completing our remediation of all the previously identified material weaknesses in our controls environment," Piszel added. "While our expectation is for continued weakness in the housing and economic environment to negatively impact our overall performance through the remainder of this year, we have put Freddie Mac on a better foundation to manage through the current cycle and emerge a successful, long-term competitor."
Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible more than 50 million times, ensuring financing for one in six homebuyers and more than four million renters.
For more information, visit http://www.freddiemac.com/investors.