Fannie, Freddie Downgraded by Goldman

By
Mortgage and Lending with Cherry Creek Mortgage

Already straining under the housing slump, Fannie Mae and Freddie Mac are being peppered with increasingly pessimistic forecasts from Wall Street just days before their fourth-quarter earning announcements.

Shares of both government-sponsored mortgage companies fell Monday after a major investment firm downgraded its ratings for the two biggest buyers and backers of U.S. home loans.

Goldman Sachs Group Inc. downgraded its ratings for the Freddie and Fannies to "sell" from "neutral" over the weekend, saying the U.S. is only "halfway" through the housing downturn.

Friedman, Billings, Ramsey & Co. on Monday downgraded its rating on Fannie to "underperform" from "market perform."

Citing rising losses from bad loans, analyst Paul Miller forecast a fourth-quarter loss of $2 a share -- wider than Goldman Sachs' loss estimate of $1.75 a share and Thomson Financial's consensus average of a $1.14-per-share loss.

Fannie is scheduled to release its quarterly results Wednesday. Freddie's earnings come out Thursday.

The two companies are the largest purchasers and backers of U.S. home mortgages, together holding or guaranteeing about $4.9 trillion in home-loan debt. They lost $1.4 billion and $2 billion, respectively, the third quarter of 2007 as mortgage defaults mounted and they were forced to set aside billions of dollars to account for sour loans.

The companies sliced their dividends in December and sold billions of dollars of special stock to shore up their finances and keep their capital levels, as a cushion against risk, above government-mandated minimums.

Freddie spokesman Michael Cosgrove and Fannie spokeswoman Amy Bonitatibus said the companies as a policy do not comment on analysts' reports.

In the latest dose of bad housing news, the National Association of Realtors reported Monday that sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month. The group said sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on records going back to 1999.

Goldman Sachs analyst James Fotheringham, in a research note dated Sunday, said the economy is just halfway through "this severe housing cycle."

Fotheringham estimated Fannie would report a per-share fourth-quarter loss of $1.75, wider than the previous loss estimate of $1.65 per share. For Freddie, Fotheringham estimates a fourth-quarter loss of $3.70 per share, widened from the previous estimate of $3.45.

Analysts polled by Thomson Financial are forecasting an average fourth-quarter loss of $1.14 a share for Fannie and $2.54 a share for Freddie.

Fannie shares fell 45 cents, or 1.57 percent, from Friday's close to $28.27 in trading Monday. Freddie stock slipped 43 cents or 1.62 percent to $26.18. Shares of both companies are at around half their value of a year ago.

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Rick Kellow

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