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Freddie's Future Hinges on Recovery of Reserves.(Mortgage Scene)(Federal Home Loan Mortgage Corp.)
Byline: Paul Muolo
Facing future losses of between $16 billion and $42 billion - most of which are tied to subprime and alt-A loans - Freddie Mac is betting its survival on its ability to recapture loan loss reserves and related charges.
At least, that was one message company officials tried to convince analysts of last week when it posted a $821 million loss for the second quarter, and revealed a $1 billion impairment charge on its securities portfolio.
During its conference call with stock analysts, company CFO Buddy Piszel noted that 90% of the "marks" that the GSE is taking "will flow back to us."
In other words, even though the congressionally chartered Freddie is setting aside money for loan losses tied to accelerating defaults, it hopes to eventually recapture, or get the money back.
It is depending on bond insurance coverage, mortgage insurance payments and its ability to cure delinquent loans. It also believes that MBS and ABS securities that are presently underwater (not worth their original value) will one day recover.
As one stock analyst told this newspaper: "They are overly optimistic. They are saying they are right and the market is wrong."
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Source: HighBeam Research, Freddie's Future Hinges on Recovery of Reserves.(Mortgage...