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Freddie Mac Anticipates Huge Hurricane Related Losses

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Freddie Mac recently released preliminary estimates of its losses from the September twin Gulf Coast hurricanes.

After-tax hurricane losses which will be recorded in the third quarter of 2005 as a result of Katrina and Rita are expected to range between $150 and $300 million. The corporation stated that this estimate should represent most of the losses it will suffer from storm related damage. Its exposure to losses primarily arises from its guarantee of principal and interest on Participation Certificates and Structured Securities the company issues and from its huge portfolio holdings of mortgages and mortgage securities that are collateralized by property in the affected areas.

Freddie Mac's statement explained the rather huge range in expected loss figures by saying that the estimates involve the "exercise of considerable judgment and reflect a combination of evaluations, model results, and prior experience with natural disasters. These estimates are inherently imprecise due to a variety of factors, including the unprecedented nature of the disaster, the inability to access portions of the affected areas, and the preliminary nature of the information used to prepare these estimates."

Richard F. Syron, Freddie Mac Chairman and CEO stated that "our primary concern continues to be ensuring that affected borrowers and lenders are obtaining the relief needed to rebuild their lives and get back on their feet financially."

Fannie Mae has not, as yet, publicly released information on its projected losses.

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