Freddie Mac is a stockholder-owned corporation established by Congress in support of homeownership and rental housing.  Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage passthrough securities and debt instruments in the capital markets.  Over the years, Freddie Mac has opened doors for one in six homebuyers in America 
URL :http://www.freddiemac.com

McLean, VA – 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.

Related Links 
Appendix [PDF 78K] 
Conference Call Webcast 
Conference Call Slides [PDF 178K] 
Financial Statements and Core Tables [PDF 126K] 
Information Statement Supplement [PDF 545K] 
 
"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."

GAAP Results

  Three Months Ended 
($ in millions)  March 31, 2008  December 31, 2007 March 31, 2007 
Net interest income $ 798 $ 774 $ 771 
Management and guarantee income 789 698 628 
Other non-interest loss (58) (2,093) (705) 
Total revenues 1,529 (621) 694 
Administrative expenses (397) (401) (403) 
Credit-related expenses (1,448) (912) (262) 
Other non-interest expense (258) (2,144) (559) 
Total expenses (2,103) (3,457) (1,224) 
Loss before taxes (574) (4,078) (530) 
Income tax benefit 423 1,626 397 
Net loss $ (151) $ (2,542) $ (133) 
Estimated regulatory core 
capital (at period end) $ 38,320 $ 37,867 $ 35,503 
 

Net loss for the first quarter of 2008 was $151 million, compared to a net loss of $2.5 billion in the fourth quarter of 2007. Improved results reflect reduced losses related to a change in the guarantee obligation valuation methodology implemented under SFAS No. 157, "Fair Value Measurements" (SFAS 157), which better aligns revenue recognition with the economic release from risk under the guarantee. As a result, effective January 1, 2008, the company no longer records estimates of deferred gains or immediate losses recognized upon issuances of single-family Mortgage Participation Certificates (PCs) and Structured Securities in guarantor swap transactions through losses on certain credit guarantees, a component of non-interest expense. In the fourth quarter of 2007, the company incurred $1.3 billion in losses on certain credit guarantees.

Improved results also reflect lower interest-rate related mark-to-market losses as a result of the company's adoption of SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115" (SFAS 159). Effective January 1, 2008, the company elected the fair value option for certain available-for-sale mortgage-related securities and its foreign-currency denominated debt. Upon adoption of SFAS 159, the company recognized a $1.0 billion after-tax increase to its beginning retained earnings at January 1, 2008. See the Appendix for more detail on the adoption of SFAS 157 and SFAS 159. 

In addition, during the first quarter, the company recorded strong revenue growth in the guarantee business mostly due to growth in the average balance of issued PCs and Structured Securities, which was offset by higher credit-related expenses as higher loan loss severities and serious delinquency rates resulted in increases in provision for credit losses and real estate owned (REO) operations expense. 

The key components affecting the company's net loss for the first quarter of 2008 as compared to the fourth quarter of 2007 were:

Net interest income for the first quarter was $798 million, up $24 million, or 3 percent, from $774 million in the fourth quarter. This increase was primarily driven by wider spreads on fixed-rate assets and debt funding at lower levels, largely offset by the adverse effect of spread compression associated with 1-month rate resets on floating-rate assets as rates declined and an increase in amortization expense. 

Management and guarantee income on PCs and Structured Securities for the first quarter was $789 million, up $91 million, or 13 percent, from $698 million in the fourth quarter. This increase reflects growth in the average balance of issued PCs and Structured Securities, as well as a higher total guarantee fee rate, which increased to 18.2 basis points for the first quarter from 16.6 basis points in the fourth quarter. This higher rate was driven by an increase in up-front cash payments and the impact of higher average fees associated with guarantees issued in 2007.

Other non-interest loss for the first quarter was $58 million, compared to a loss of $2.1 billion in the fourth quarter. Improved results reflect lower interest-rate related mark-to-market losses as a result of higher gains on investment activities as the company recognized market valuation gains on trading securities recorded at fair value due to the implementation of SFAS 159 and reduced losses recognized on the company's derivatives portfolio. See the Appendix for more detail on the adoption of SFAS 159 and implementation of hedge accounting.