More Losses Expected for the Mortgage Giants
RateEmpire.com
The sub prime mortgage crisis is on the edge of getting poorer. According to a calculation by Bank of America Corporation, during the next year the interest rates are going to rise or reset at $362 billion worth of adjustable rate sub prime mortgages.
The slump in credit market is becoming poor. Moody's Investors Service is assuming that there are chances that Freddie Mac, the second-largest U.S. mortgage-finance company, possibly will end up with more losses than what is forecasted.
Earlier in this week Freddie Mac, reported a record loss of $2.02 billion for the third quarter. The analysts of Moody’s Investor Service believes that they might have underestimated them when it expected that 0.11 percent of the debt will undoubtedly go bad in the next two years as well.
Experts believes that the continuous corrosion of the mortgage market will result in further decline in these books, this may lead to credit losses in excess of their 11 basis point loss.
Freddie Mac, based in McLean, Virginia, said that they are expecting credit losses to continue and also increase by the next year. On the other hand the larger Washington-based Fannie Mae guarantee 40 percent of the $11.5 trillion United States home-loan market. The government-chartered companies have lost $57 billion in market value because of the write-downs caused by record mortgage foreclosures in United States. This week itself, the analysts from the Group of Credit Suisse said that Freddie Mac may face a loss of as much as $5 billion on its sub prime holdings next year.
Sharon McHale, a Freddie Mac spokeswoman said, that they have given their estimates on Tuesday with their earnings, and they stand by those.
The shares of Freddie Mac, were down by 41 percent since Nov. 13 as concern about potential losses rose up. The value of the shares rose for the first time in last seven days, increased by 47 cents, or 1.8 percent, to $26.47 in New York Stock Exchange composite trading. On the other hand the Fannie Mae climbed $2.97, or 10 percent, to $32.20.
Bank of America Corp., the second-largest U.S. bank, believes that this week the losses at Freddie Mac and Fannie Mae would make it harder for banks to sell their mortgage bonds, aching the U.S. economy by restricting the banks' ability to make new loans.
The world's biggest banks, brokers and insurers have announced write-downs of more than $60 billion in losses related to sub prime lending.
Freddie Mac reported that they have preserved $1.2 billion as provisions for the credit losses and have reduced the value of their assets by $3.6 billion. This week the company also said that the company's $713.1 billion portfolio as of September included $105 billion of securities backed by sub prime mortgages. Other than the temporary write-downs, during the year of 2008 the Freddie Mac will also take another write-down of $1 billion to $5 billion on sub prime mortgages.
During the second week of November, Fannie Mae reported a third-quarter net loss of $1.39 billion, caused due to the decline of $2.24 billion in the value of derivatives and $1.2 billion in credit losses among the $2.7 trillion of mortgage assets Fannie Mae owns or guarantees.
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