Thursday, June 14, 2007

Freddie Mac "Adjust" To Reality

if you can stand cheering news/pr like this feel free to click on the headline.... :-(

wenn ihr unfassbare pr lesen wollt braucht ihr nur auf die überschrift zu klicken....... :-(

"I'm particularly proud that our company took a leadership role in the subprime mortgage market, announcing new underwriting standards and products and committing to purchase up to $20 billion in mortgages to support subprime borrowers."

Freddie Mac (NYSE: FRE - News) today reported a net loss of $211 million, or $0.46 per diluted common share, in the first quarter of 2007, compared to net income of $2.0 billion, or $2.80 per diluted common share, for the same period in 2006. The company also reported a decline in fair value of net assets attributable to common stockholders, before capital transactions, of approximately $300 million in the first quarter of 2007, compared to an increase of $1.0 billion for the same period a year ago. The declines in net income and fair value results were primarily due to losses on mark-to-market items.
During the first quarter of 2007, the company recorded mark-to-market losses totaling $1.2 billion on items included in other non-interest income (loss), compared to a mark-to-market gain of $742 million in the first quarter of 2006

Credit-related expenses, consisting of provision (benefit) for credit losses and real estate owned (REO) operations expense, were $193 million in the first quarter of 2007, compared to $60 million in the first quarter of 2006. (up 221%)

Included in other non-interest expense are mark-to-market losses of $314 million compared to losses of $67 million in the first quarter of 2006. These increased losses reflect the impact of lower market prices on non-performing loans purchased out of guaranteed securities, as well as the impact of higher expected credit and other costs reflected in the market-based valuations of the guarantee obligation associated with new single-family mortgage securitizations.

A portion of these mark-to-market losses reflects market uncertainty in the pricing of mortgage credit at March 31, 2007, and accordingly implies higher credit losses than the company expects to ultimately incur.

>it will be interesting to see how the recent spike in yields will impact next quarter earnings

>ich bin gespannt wie sehr der zinsanstieg sich auf die nächsten quartalsergebnisse auswirken wird.

disclosure: short KBW Mortgage Finance Index (including FRE)

UPDATE:

Freddie Mac Q1 2007 Earnings Call Transcript http://tinyurl.com/ytvumy

PDF Slide Show Presentation http://tinyurl.com/yq6ue5

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4 Comments:

Anonymous Anonymous said...

ich bin gespannt wie sehr der zinsanstieg sich auf die nächsten quartalsergebnisse auswirken wird.

Ich auch. Hoffentlich sehr negativ.

disclosure: short KBW Mortgage Finance Index (including FRE)

Danke, I was not familiar with this index, which is, apparently, tradeable. Oddly, marketwatch and google finance return an uknown symbol error. Yahoo finance finds it. It cannot be traded at Charles Schwab.

?

I am already short SRS.

3:09 AM  
Anonymous Anonymous said...

Etrade allows long positions. After market open, I'll see if it can be shorted.

3:15 AM  
Anonymous Anonymous said...

Oops. I meant that I own SRS, meaning I am short real-estate, with leverage. Bin mal gespannt...

3:34 AM  
Blogger jmf said...

hello,

the biggest risk is that if wall street plays the "rate cut" card sometimes down the road it could be that despite very weak fundamentals they "orchestrate" a nice squeeze.

here is the link

http://www.kbw.com/research/MFX.asp

3:39 AM  

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