by Tanta on 3/25/2007 08:34:00 AM

David S. Hilzenrath reports in yesterday's Washington Post:

Freddie Mac, still fixing weaknesses that came to light in 2003, yesterday issued its first timely annual report in five years, which showed that the giant mortgage funding company lost $480 million in the fourth quarter. That compared with a profit of $684 million in the comparable period a year earlier.
. . .
"Families are finding it hard to stay in their homes as deteriorating house prices, regional job losses and increasing mortgage payments are making their homes less affordable," chairman and chief executive Richard F. Syron said in a prepared statement.

Last year, Freddie experienced a slight deterioration in the creditworthiness of loans "as more loans transitioned through delinquency to foreclosure" and as "the expected severity of losses" on individual homes increased, the company said.
. . .
Freddie reported that the delinquency rate on its single-family home mortgages -- the percentage of loans at least 90 days past-due or in foreclosure -- declined to 0.53 percent last year, from 0.69 percent the year before.

There were also less favorable developments. The company lost $126 million last year on loans it had to repurchase from other investors because they were late 120 days or more. In 2005, there were no such losses, spokesman Michael Cosgrove said.

For a company the size of Freddie Mac, $126 million is not a crippling loss. But it shows that the repurchase problem--in this case, apparently, of loans sold with recourse--is affecting everyone in the food chain. Freddie's report also may indicate that the problem for prime and near-prime will be loss severity, not loss frequency. Subprime, it seems clear, faces the same or worse severity problems, but of course at much higher frequencies.