The Freddie Mac Bomb!

Well it shouldn't have come as a surprise but Freddie Mac the world's 2nd largest buyer of mortgages lost $821M in the second quarter 08 compared to a profit of $729M a year ago. The news shocked Wall Street as most analysts were only figuring a loss of .38 cents a share but in reality received $1.63 a share. Hence, Freddie's stock has lost 20% already this morning. The reality of this financial news will hit the real estate community hard as Freddie's results have shaken investors confidence and as a result MBS (Mortgage Backed Securities) have sold off big time and are currently down 45 basis points. What does this mean? Higher rates will be a certainty this morning.

Fannie Mae the world's largest buyer of mortgages will release their second quarter results on Friday so we could be in for more bad news. Not that this comes as a big surprise but I think investors are looking for the bottom in this mess in order to instill confidence in their (Fannie & Freddie) financials. Certainly the moves made by the government toward the end of last month gave some creditability to the government sponsored agencies but the fact remains that the companies poor performance, concern over capital requirements, the ability to raise capital and the struggling sector for which they must profit on have really hit these companies in a big way. The bottom line when deciding to invest dollars in a company is it's ability to make money and right now there are big concerns whether or not this is possible in the near term future.

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