Mortgage buyer chief Richard Syron tells shareholders the company's earnings will grow 15% to 20% this year, but not before taking $6 billion hit from bad mortgages.
June 6, 2008: 11:35 AM EDT
WASHINGTON (AP) -- Freddie Mac's chief executive tried to reassure shareholders Friday that the mortgage finance company's fortunes will improve, after a year in which its share price was sliced by more than 60% amid a prolonged housing slump.
The second-largest U.S. buyer and backer of home mortgages will be able to emerge from the housing downturn with a robust business, Freddie Mac Chairman and CEO Richard Syron told shareholders at the company's annual meeting in McLean, Va.
Wall Street seemed unconvinced as Freddie Mac shares fell $1.06, or 4.2%, to $24.23 in morning trading. They are down from more than $65 a year ago.
Syron reiterated previous expectations, saying the company expects revenue growth of 15% to 20% this year, but expects to see losses from bad mortgages rise to as much as $6 billion this year.
"Weakening housing prices and housing activity have led to a punishing deterioration of credit which has hurt our results, along with those of other market participants," Syron said.
However, the company is well-suited to ride out the housing bust because the home loans that Freddie Mac holds or guarantees are far less risky than those held by other lenders, he said.
"We know we have to do better - even in the most adverse market environment," Syron said, telling shareholders that executives "will not be satisfied until you have received a fair return for the capital you have invested in the company."
Freddie Mac posted a loss of $3.1 billion last year and lost $151 million in the first quarter of this year.
Its first-quarter losses were better-than-expected, though much of the improvement was due to changed accounting practices.
Freddie Mac (FRE, Fortune 500), like its larger government-sponsored sibling, Fannie Mae (FNM, Fortune 500), buys home loans from banks and lenders, packages the loans into bonds, and sells the bonds to investors. Since investors assume the government would not let Fannie and Freddie fail, the companies are able to raise money more cheaply than other banks and lenders.
Critics, however, say Freddie's finances are shaky and warn it could be headed for a government bailout.
Lawmakers are considering legislation that tightens regulation of Fannie and Freddie, as part of a broad housing package that includes a $300 billion foreclosure prevention program. The House passed its version last month. Senate leaders say they want to vote by July.
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