Mortgage giants see more trouble

WASHINGTON -- The chief executives of Fannie Mae and Freddie Mac on Tuesday warned their ailing mortgage-finance companies will suffer further in 2008 due to a weakening housing market and rising home-loan defaults.

Freddie's CEO, Richard Syron, said the government-sponsored company could lose an additional $5.5 billion to $7.5 billion over the next few years from soured home loans.

"I honestly think it's going to get tougher before it gets better," Syron said in a discussion with financial analysts in New York. His company has already logged about $4.5 billion in projected losses during the first nine months of this year.

Freddie's shares fell $3.73, or 10.6 percent, to finish at $31.31 in trading Tuesday.

Fannie CEO Daniel Mudd, also meeting with analysts at the conference, forecast "a very tough 2008" and continued weakness in home prices through 2009. Mudd called the wave of defaults and foreclosures this year the worst mortgage crisis "in recent memory."

The Washington-based company, which lost $1.4 billion in the third quarter, sold $7 billion in preferred stock last week to raise capital to stabilize its finances. Mudd said Tuesday that Fannie had no further plans for such sales over the next year.

Mudd said the company could raise additional capital, however, through sales of mortgage investment holdings, increased fees on mortgages and other measures.

On Tuesday, McLean, Va.-based Freddie announced it was imposing a 0.25 percent fee on all new home loans it buys or guarantees with settlement dates starting March 9, matching an earlier move by Fannie. On a $300,000 mortgage, the new fee translates to an extra $750, which is expected to be passed on to homeowners, though the companies aren't saying. Both companies have begun adding surcharges on loans to borrowers with credit scores below 680 and who are borrowing more than 70 percent of the home's value.