Fannie, Freddie: More Gloom Ahead

The CEOs of Fannie Mae and Freddie Mac, the two government-chartered financiers of mortgage loans, recently voiced concerns about the housing market’s future. Freddie Mac’s Richard Syron said his company will likely suffer another quarterly loss of about $2 billion, with credit losses totaling $10-12 billion. The worst is not over yet, however: he expects home prices to drop further before the market stabilizes. The company is in “hiring freeze” in order to control costs while it struggles with losses. Fannie Mae’s CEO Daniel Mudd expects 2008 to be “very tough”, with a gradual recovery in late 2009. He expects home prices to fall 12% by next year and hopes Fannie’s recent efforts to raise capital will be enough to help the company deal with the situation. As the housing slump unfolds, it turns out even the two GSEs are not immune to trouble. Both have slashed their dividends in recent weeks and issued stock to raise capital.