Housing Turmoil squeezes Freddie Mac
Turmoil in housing continued to reverberate Tuesday across several parts of the industry.
Freddie Mac, the big mortgage finance compamy, posted a $2 billion loss for the third quarter and warned that it might not have enough capital on hand to cover the mandatory reserves for its mortgage commitments. The company has been battered by a rising wave of foreclosures tied to subprime mortgage defaults and is now “seriously considering” cutting its stock dividend.
Shares of the company plummeted 26 percent in early trading, to $27.83.
“Without doubt, 2007 has been an extremely difficult year for the countrys housing and credit markets,” Richard Syron, the chairman and chief executive of Freddie Mac, wrote in a statement.
Syron was not alone in his lament. R. Horton, the nations largest home builder, reported a $50.1 million loss in its fiscal fourth quarter as the housing downturn pummeled its inventory, goodwill and land-use contracts. Lower demand and tighter lending standards have cut back the companys business and caused many clients to cancel contracts.
“We expect the housing environment to remain challenging,” Donald Horton, the companys chairman, said in a statement.
The subprime debacle also claimed another high-profile casualty: HR Blocks chairman and chief executive, Mark Ernst, who said Tuesday he would resign amid the companys exposure to risky loans. Richard Breeden, the former chairman of the Securities and Exchange Commission, will take over as chairman. The chief executive slot will be temporarily filled by Alan M. Bennett, a former top executive at Aetna, the insurance company.
Home building data released by the government Tuesday suggested the troubles in the housing sector will continue. Permits for residential groundbreakings fell 6.6 percent in October to their lowest level in over 14 years. They have dipped nearly 25 percent since last October, to a seasonally adjusted 1.18 million annual rate, the Commerce Department said.
Meanwhile, new residential construction grew slightly last month, rising 3 percent, to a 1.23 million annual pace. It was the first increase in four months, but housing starts remain near the lowest level since the recession of the early 1990s.
Investors will also be focusing on Tuesdays economic forecast from the Federal Reserve. Central bankers have warned that housing problems will continue unabated into next year.
