Los Angeles, California

HomeCaliforniaLos Angeles

Email Paul Kiesel Paul Kiesel on LinkedIn Paul Kiesel on Twitter Paul Kiesel on Facebook
Paul Kiesel
Paul Kiesel
Contributor •

Freddie Mac: It's Impossible for Anyone to Know How Much Worse Housing Market Will Get

Comments Off

CEO Richard Syron, who ignored advanced warnings of the current housing crisis, said today that with housing prices falling faster than the company expected, and credit quality accordingly deteriorating more rapidly, Freddie Mac will offer “absolute complete transparency.”

Today, Freddie increased its forecast for U.S. house-price declines, with Syron acknowledging that it’s impossible for anyone to know how much worse the housing market will get. Freddie Mac also posted a wider-than-expected $821 million second quarter-loss, which had a lot to do with the company’s exposure to Alt-A loans and other “creative mortgages.”

Delinquencies up 50%

According to CNNMoney.com:

[. . .] some of the credit quality trends [at Freddie] are daunting. Serious delinquencies – measuring loans past due by 90 days or more, or in foreclosure – jumped to 3.72% of Alt-A loans in the second quarter ended June 30. That’s more than half again as many seriously delinquent Alt-A loans as Freddie had in the first quarter, and more than triple the year-ago level. (8/6/08)

Another issue Freddie faces is what it claims to be assets and what others see as improper capital calculations. The company has an $18 billion deferred tax asset that it’s been carrying on its balance sheet. Some analysts that have made billions betting against the housing and mortgage markets view Syron’s accounting methods negatively. Analysts thinks that it is inappropriate of Syron to include the promise of reduced taxes on future earnings in the company’s capital calculations.

Len Blum, who is a managing director at Westwood Capital, is skeptical of Syron’s and Freddie’s calculations and likens the company’s stance to a consumer counting their grocery-store coupons as income. If this is true, Freddie will be hard pressed to rebound anytime soon, especially with a coupon-snipping accounting strategy (deferred tax asset). Shareholders will walk to another company and file in line behind the CEO without the bag of coupons.