Freddie Posts Loss, May Cut Dividend; Citigroup Takes Huge Hit; Expectations of Recession Increase

The housing market and subprime melt down continues and has hit Freddie Mac, one of the two largest makers of the secondary market for home mortgage loans, as reported by Bloomberg.com (http://www.bloomberg.com/apps/news?pid=20601087&sid=atzHj5IWr2ms&refer=home). Meanwhile Citigroup may take a hit of up to $15 billion overall from problem loans. Here are highlights from the Bloomberg story:

Nov. 20 (Bloomberg) -- Freddie Mac, the mortgage buyer that has helped almost 50 million Americans purchase a home, posted its largest-ever loss and said ``significant deterioration'' in the housing market may force it to cut its dividend and raise capital. The shares tumbled 35 percent, the biggest decline since the stock began trading in 1988. Freddie Mac reported a net loss of $2.02 billion, or $3.29 a share, at least triple what some analysts' estimated, after providing $1.2 billion for credit expenses and reducing the value of assets by $3.6 billion.

``It's as bad as it possibly could be,'' said Howard Shapiro, an analyst at Fox-Pitt Kelton in New York. Shapiro today downgraded Freddie Mac shares to ``sell'' from ``overweight.'' The biggest slump in the housing market in 16 years broadened its reach to Mclean, Virginia-based Freddie Mac and the larger Fannie Mae, two institutions set up by Congress to help foster American home ownership. The companies, which own or guarantee 40 percent of the $11.5 trillion U.S. home loan market, are recording more losses as mortgage defaults and foreclosure filings rise to record levels.

Wells Fargo & Co. Chief Executive Officer John Stumpf last week said the housing market was the worst since the Great Depression. Banks and securities firms worldwide have already reported about $50 billion in losses from subprime mortgages, loans given to borrowers with weak credit that have been defaulting at a record pace. The total damage may reach $400 billion, Deutsche Bank analysts said last week. Foreclosure filings doubled to 223,538 in September from a year earlier as subprime borrowers struggled to make payments on adjustable-rate mortgages, RealtyTrac Inc. said last month.

Of course, the Chimperator and Emperor Cheney continue to pretend that the U. S. economy is strong. Meanwhile, here's highlights on the Citigroup disaster (http://www.bloomberg.com/apps/news?pid=20601103&sid=aQk5LGM7y06M&refer=news):

Nov. 20 (Bloomberg) -- The risk that banks and brokerages from Citigroup Inc. to Bear Stearns Cos. will default on their debt is accelerating as analysts increase their estimates of losses from subprime mortgages, credit-default swaps show.

The increases are the biggest in two weeks as more analysts predict that writedowns by banks and securities firms, already $50 billion worldwide, will continue to grow. Goldman Sachs Group Inc. estimates Citigroup's losses will expand to $15 billion in the next two quarters and CreditSights Inc. analysts said UBS AG, Europe's largest bank by assets, may have lost as much as $9 billion on collateralized debt obligations. ``There's still a lot more uncertainty to come,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. ``We understand the risks now, but we don't know how to measure them yet.''

The losses at banks and securities firms are fueling concern that rising delinquencies on home loans to people with poor credit will drag down the economy. The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion, Goldman Sachs economists said last week.

The number of economists forecasting a U.S. recession almost doubled in the past two months, according to a survey by the National Association for Business Economics. Nine of 50 economists pegged the odds of a contraction over the next 12 months at 50 percent or higher, according to a poll taken from Oct. 22 to Nov. 6. Five of 46 held a similar view in September.