Freddie Mac reports big drop in profit

Updated: 8:14 a.m. ET Aug. 30, 2007

WASHINGTON - Freddie Mac, the second-largest U.S. buyer and guarantor of home mortgages, said Thursday its second-quarter profit fell 45 percent as it had to record larger provisions on its books for bad loans.

The government-sponsored company, which is returning to normalcy after an accounting scandal four years ago, said it earned $764 million, or $1.02 per share for the three months ended June 30. That contrasted with profit of $1.4 billion, or $1.93 a share, a year ago.

Revenue rose 4.8 percent to $2.26 billion from $2.15 billion in the quarter a year ago. Freddie Mac makes money from interest payments on mortgages it holds on its books, and fees from insuring mortgages sold to investors.

The company said it recorded a $320 million provision for credit losses in the second quarter due to problems with loans originated this year and last year, amid a deepening mortgage crisis nationwide that has bankrupted more than 50 lenders.

The earnings results missed Wall Street expectations, with analysts surveyed by Thomson Financial expecting a profit of $1.16 per share on revenue of $1.69 billion.

Freddie Mac, and its larger government-sponsored sibling Fannie Mae, were created by Congress to pump money into the $8 trillion home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street.

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