Katrina, Accounting Issues Still a Challenge at Freddie.(Federal Home Loan Mortgage Corp.)

MCLEAN, VA -- Freddie Mac's 2005 earnings fell 27% from 2004 as the costs of a recent securities settlement, accounting changes and Hurricane Katrina weighed down earnings. But declining net interest margins also factored into Freddie Mac's results.

Net income totaled $2.1 billion in 2005, down from $2.9 billion in 2004. Diluted earnings per share were $2.75, down from $3.94 a year earlier, under generally accepted accounting principles.

The market reaction was negative, with Freddie Mac's stock pricing closed at $60.04 on May 31, down more than 3% from its closing price of $61.58 on May 30.

Freddie Mac executives stressed positive trends, saying that they gained market share in the mortgage-securities business and exceeded the company's 30% surplus capital requirement by $3.5 billion at the end of 2005. They also said that interest-rate and credit risks remain near historic lows.

During a conference call to discuss 2005 results, chairman and CEO Richard Syron said Freddie Mac's share of the GSE mortgage securities market rose to 45% last year, up from 41% in 2004.

"The fundamentals of this franchise remain strong. We have a powerful capital position and balance sheet, excellent risk management and a stronger competitive position."

Eugene McQuade, president and chief operating officer, said that Freddie Mac's investments in business capabilities, infrastructure improvements and new management marked a return to competitiveness last year and early this year.