Magazine article American Banker

1Q Earnings: Dim Credit Outlook Aside, Freddie's Forecasts Upbeat

Magazine article American Banker

1Q Earnings: Dim Credit Outlook Aside, Freddie's Forecasts Upbeat

Article excerpt

Freddie Mac gave a ringingly bullish outlook for growth opportunities while increasing its credit-loss projections, saying house prices have fallen faster than it expected.

In a conference call Wednesday on its first-quarter results, Patricia L. Cook, Freddie's chief business officer, said a dramatic increase in the government-sponsored enterprises' share of mortgage securities issuance - from about 40% in the first quarter of 2006 to about 80% in the first quarter of this year - as competitors pulled back had not come "at attractive terms" for her company.

"The credit quality was worse, and we weren't getting paid for the additional risk," she said. "However, with the tightening of terms and increases in fees that we have begun to implement, the expected returns on our current flow are substantially better."

Freddie said that its fees for guaranteeing new business averaged 20.7 basis points in the fourth quarter of last year, and that it expects the fees to average 25 to 30 basis points in the fourth quarter of this year.

Similarly, "the improved outlook on the capital front resulting from the reduction in the capital surplus" required by the Office of Federal Housing Enterprise Oversight, a "planned capital raise, and the improved GAAP income picture allowed us to maintain [a] more active posture and begin to grow our retained portfolio," Ms. Cook said.

Freddie said it committed to buy about $100 billion of bonds from March through mid-May, taking advantage of attractive prices. It estimated that its retained portfolio has grown at an annual rate of about 7% this year, to $738 billion as of April 30.

Anthony Piszel, Freddie's chief financial officer, said that just because the recent activity "is way above what we normally would have been purchasing on a monthly basis, ... that does not mean we're not going to continue to grow. …

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