Freddie, Fannie chiefs: More losses ahead

NEW YORK (CNNMoney.com) -- The CEOs of Freddie Mac and Fannie Mae warned their ailing mortgage-finance companies will suffer further in 2008 due to a weakening housing market and rising home-loan defaults.

"Our fourth-quarter results are not expected to be better than they were in the third quarter," said Freddie Mac CEO Richard Syron, speaking at a conference sponsored by Goldman Sachs.

Less than a month ago, the government-sponsored enterprise reported a net loss of $2 billion in the third quarter. Future credit losses are expected to reach between $10 billion and $12 billion, Syron said.

"We think we've been quite cautious in this, but we did it in the interest of trying to assure people where we are and are trying to go," he said.

Syron also offered a dismal view on the broader housing and mortgage market, saying he expected national home prices to fall by 10 percent from their peak, while that decline could be even steeper in California and Florida.

But Syron said Freddie Mac was acting aggressively in estimating potential future credit losses and said that the company's future "looks better and better."

Freddie Mac and the larger Fannie Mae (Charts) have attracted Wall Street's attention lately.

On Tuesday, Freddie Mac said it would raise the fee on all home loans it buys or guarantees with settlement dates starting March 9, 2008, by a quarter percentage point.

In an effort to raise cash to safeguard against future losses, Freddie Mac announced earlier this month that it would halve its quarterly dividend and unveiled plans to sell $6 billion in preferred stock.

Experts have speculated that Freddie Mac could be forced to limit growth or reduce the size of its mortgage investment holdings.

Freddie Mac (Charts, Fortune 500) shares, which have fallen 48 percent so far this year, tumbled another 4 percent in midday trade on the New York Stock Exchange.

Fannie CEO Daniel Mudd, also meeting with analysts at the conference, forecast "a very tough 2008" and continued weakness in home prices through 2009. Mudd called the wave of defaults and foreclosures this year the worst mortgage crisis "in recent memory."

The Washington-based company, which lost $1.4 billion in the third quarter, sold $7 billion in preferred stock last week to raise capital to stabilize its finances. Mudd said Tuesday that Fannie had no further plans for such sales over the next year.

Mudd said the company could raise additional capital, however, through sales of mortgage investment holdings, increased fees on mortgages and other measures.

The chief executives' remarks came a day after Freddie and Fannie said they would change their criteria for purchasing delinquent home loans they've guaranteed, in order to reduce the number they buy from investors.

Fannie and Freddie, which together own or guarantee around two-fifths of U.S. home-mortgage debt, have cut their dividends and sold billions of dollars of special stock recently to buttress their finances after posting stunning third-quarter losses.

They have been forced to set aside billions of extra dollars to account for bad home loans, eroding their profits at a time when home prices are falling and defaults are spiking on high-risk mortgages made to borrowers with weak credit histories.

Shares of Fannie (Charts), the No. 1 financer and guarantor of U.S. home loans, declined $2.70, or 7.4 percent, to $34.21.

-- from staff and wire reports