Freddie’s Volume Metrics in July

Freddie Mac (FRE) reported its monthly volume metrics for July 2009. Highlights for the month are as follows:

• The total mortgage portfolio decreased at an annualized rate of 3.3% in July to $2.2 billion.
• Refinance-loan purchase volume was $34.1 billion in July, down 33.0% from $50.9 billion in June.
• The aggregate unpaid principal balance of mortgage-related investments portfolio decreased to $799.1 billion at July 31, 2009 from $829.8 billion at June 30, 2009.
• The net amount of mortgage-related investments portfolio mortgage purchase (sale) agreements entered into during the month of July totaled $11.0 billion, up 11.1% from the $9.9 billion during the month of June.
• Total guaranteed PCs and Structured Securities issued decreased at an annualized rate of 2.1% in July.
• The measure of FRE’s exposure to changes in portfolio market value averaged $556 million in July.
• Delinquencies, which reflect loans whose payments are overdue and its increase adds to stress on the company's capital, increased to 2.95% of its book of business in July from 2.78% in June and 1.01% in July 2008. However, the multifamily delinquency rate remained flat at 0.11% in July compared to June, but increased significantly from 0.03% in July 2008.

Freddie Mac reported a surprise profit in the second quarter of 2009 and indicated that it may not need additional federal aid in the near term.

In September 2008, the U.S. government took control of Freddie Mac and its larger sibling, Fannie Mae (FNM), after they reported huge losses and shrinking capital caused by plummeting U.S. house prices. The government is now relying heavily on Fannie Mae and Freddie Mac in their efforts to stimulate the U.S. housing market by buying more mortgage loans, easing refinancing and helping homeowners avoid foreclosures.

Given the uncertain near term outlook for Freddie Mac, we maintain an Underperform recommendation on the stock.

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