Freddie Mac’s Accounting Tricks

From the New York Times:

Freddie Mac beat Wall Street’s expectations in the first quarter, but the mortgage finance company didn’t vanquish concerns about its ability to weather the housing bust.

Changes in accounting practices helped McLean, Va.-based Freddie Mac achieve better-than-expected results Wednesday. In a research note, Citigroup analyst Bradley Ball cited ”improved accounting methodologies” as a reason for Freddie’s positive results.

Freddie reported a first-quarter loss of $151 million, or 66 cents a share, beating the expectations of analysts polled by Thomson Financial, who expected a loss of 92 cents per share.

Skeptics have long warned that Freddie and its larger government-sponsored sibling Fannie Mae won’t be able to withstand severe mortgage market losses without a federal bailout.

Moody’s Investors Service downgraded the company’s financial strength rating, projecting Freddie Mac will be hit with up to $7.5 billion in total losses from soured mortgages over the next two years.

As a result of the planned stock sale, Freddie Mac’s federal regulator said it would reduce the capital cushion the company must maintain.

Investors were encouraged that relaxed requirements by the company’s federal regulator will allow Freddie to play a larger role in the battered mortgage market.

Freddie Mac’s chief financial officer, Buddy Piszel, said the regulator’s move would allow the company to buy mortgage securities at attractive prices.

Freddie Mac’s shares gained $2.29, or 9.2 percent, to $27.25.

Freddie Mac said it set aside $1.2 billion for losses in the first quarter as a result of rising mortgage delinquency rates, falling home prices and sales. Freddie Mac is expecting total losses from bad mortgages and foreclosed properties to hit $3.1 billion this year, or 0.16 percent of the total value of mortgages the company guarantees.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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