As the Huffington Post (and AP) is reporting, Freddie Mac, which along with Fannie Mae provides the largest portion of the secondary market for home mortgage loans expects that it will be hit with additional huge losses. I agree with Freddie's chairman that it will get worse before things begin to improve. As discussed yesterday, the Chimperator's rescue plan is too little too late and will do little to stop the red ink and distress to families losing their homes. Here are some highlights:
WASHINGTON — The chief executive of Freddie Mac estimated Tuesday the mortgage finance company will lose an additional $5.5 billion to $7.5 billion over the next few years as the housing crisis worsens and home-loan defaults rise. The government-sponsored company has already logged about $4.5 billion in projected losses during the first nine months of this year. "I honestly think it's going to get tougher before it gets better," Richard Syron, the company's chairman and CEO, said in a discussion with financial analysts in New York.
Freddie lost $2 billion in the third quarter, and Syron said Tuesday that results aren't expected to be any better in the October-December quarter. Fannie's third-quarter loss was $1.4 billion.
While the mortgage crisis has brought a rising wave of foreclosure notices into public view, less evident have been "pictures of people standing with furniture on the lawn" after being forcibly evicted from their homes, Syron said. "As that begins to happen, and it will happen, I am afraid of the impact that this has." Syron's remarks came a day after Freddie Mac and its larger government-sponsored rival Fannie Mae said they are changing their criteria for purchasing delinquent home loans they've guaranteed, in order to reduce the number they buy from investors.
Fannie and Freddie, which together own or guarantee around two-fifths of U.S. home-mortgage debt, have cut their dividends and sold billions of dollars of special stock recently to buttress their finances after posting stunning third-quarter losses. They have been forced to set aside billions of extra dollars to account for bad home loans, eroding their profits at a time when home prices are falling and defaults are spiking on high-risk mortgages made to borrowers with weak credit histories.
Meanwhile the news at Washington Mutual Savings and Loan is not much better even though the Chimperator and most of the GOP presidential candidates act as if the economy is great (how do we say delusional?) (http://www.huffingtonpost.com/huff-wires/20071210/washington-mutual/):
SEATTLE — Washington Mutual Inc., the nation's largest savings and loan, said Monday that problems in the mortgage and credit markets are forcing it to close offices, lay off more than 3,000 workers and set aside up to $1.6 billion for loan losses in the fourth quarter.
After dismantling much of its subprime mortgage operation in September, Seattle-based WaMu will now get out of the business entirely. The company said it will close about 190 of its 335 home loan centers and sales offices, shut down nine call centers and eliminate 2,600 home loan workers and 550 corporate and support jobs.
It had already cut 1,000 jobs related to the sale of home loans to people with questionable credit. The company also said it will shutter WaMu Capital Corp. and rely on third party broker-dealers to sell mortgage-backed securities. On top of that, WaMu now expects to set aside between $1.5 billion and $1.6 billion for loan losses in the fourth quarter, from the $1.1 billion to $1.3 billion predicted by executives in early November. For the first quarter of 2008, the company said it expects loan losses to total $1.8 billion to $2 billion. Loan losses will remain high throughout the year, WaMu added.
Apparently the public understands better than the Chimperator the nature of what's happening in the economy (http://politicalticker.blogs.cnn.com/2007/12/11/poll-over-half-believe-economy-is-in-recession/). I hope the Democrats will open their eyes and take notice:
WASHINGTON (CNN) – More than half the American public — 57 percent — now believe the nation is in a recession, compared to 42 percent who do not, according to new CNN/Opinion Research Corporation poll released Tuesday. (Full poll results [PDF])
Thanks to that unease, the economy has now topped the war in Iraq as the issue most poll respondents identified as the most important in helping them decide which presidential candidate to support. Twenty-nine percent of poll respondents said the economy was their top issue, compared with 23 percent who listed the Iraq war – a reversal from October’s results, when 28 percent listed the war and 22 percent pointed to the economy.