|Freddie Mac CEO Richard Syron: "This is not happy news." (Stephan Savoia/Associated Press/File 2007)|
WASHINGTON - The mortgage crisis intensified yesterday as Freddie Mac, the nation's number two buyer and guarantor of home loans, posted its largest quarterly loss ever and warned that it may need to curtail its business unless it can raise fresh capital.
Freddie Mac lost $2 billion in the third quarter, much more than Wall Street was expecting, primarily because it needed to set aside $1.2 billion to account for bad home loans. Freddie Mac also said it may halve its quarterly dividend of 50 cents per share - which would be its first dividend cut since becoming a public company in 1989.
That double dose of bad news sent shares down $10.76, or 28.7 percent, to $26.74, the largest decline in the two decades they have traded publicly.
It also sent a shudder through the mortgage market since Freddie's loss was even larger than the $1.4 billion quarterly deficit of Fannie Mae, its bigger government-sponsored competitor.
Analysts noted Freddie Mac's holdings of securities backed by high-risk subprime mortgages - the loans targeted to borrowers with tarnished credit records that succumbed to a wave of defaults starting this year - greatly exceed those of Fannie Mae.
"This is a very, very difficult time. This is not happy news," Freddie Mac's chairman and cief executive, Richard Syron, said in a conference call with Wall Street analysts.