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
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.