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From Staff Reports
Shares of Freddie Mac (FRE) plummeted nearly 30% yesterday (Tuesday) when the company announced a record loss and warned of a possible dividend cut. The company is the nation's second-largest U.S. mortgage company, and yesterday's plunge marks the its biggest decline since Freddie Mac went public in 1988.
The meltdown in the housing sector caused "significant deterioration" in the third quarter and resulted in a net loss of $2.02 billion, three times the magnitude many analysts had anticipated. Also, according to Bloomberg News, the company's chief financial officer,, said that Freddie Mac's fourth quarter "is not going to be pretty."
A statement released by the company indicated that Freddie Mac "is seriously considering" reducing its fourth quarter dividend by 50%.
Freddie Mac's shares plunged $10.76 each, or 28.69%, to close at $26.74. At that price, the shares have a dividend yield of 7.48%.
Freddie Mac, along with Fannie Mae (FNM) [whose own shares plunged nearly 25% yesterday], was created by the U.S. Congress in 1970, to ensure stability, affordability and liquidity in the U.S. housing market. The companies increase mortgage financing by buying loans from lenders and profit by holding mortgages and mortgage-based assets as investments.
Together, the companies own or guarantee 40% of the $11.5 trillion home loan market. However the record level of subprime defaults has ravaged the companies' portfolios and bottom lines.
They've lost a total of $41 billion in market value so far this year, and it doesn't look like they are out of the woods yet. According to Bloomberg, Freddie Mac's $713.1 billion portfolio included $105 billion in securities backed by subprime mortgages.
News and Related Story Links:
- Bloomberg News:
Freddie Posts Loss, May Cut Dividend; Shares Plunge
- Money Morning News Analysis:
Housing Market Down For the Count, According to Industry Experts