Freddie Mac Reports $2.5 Billion Loss; Launches Probe

By David S. Hilzenrath

Freddie Mac said today it lost $2.5 billion in the fourth quarter and disclosed that its board has formed a special committee to investigate allegations of mismanagement by directors, senior officers, and the company's outside auditors.

The McLean-based mortgage funding company said the board received two letters "from purported shareholders" late last year demanding that it take legal action to recover damages from the responsible parties.

The disclosure was contained in a 190-page annual report the government-chartered company released this morning. The $2.5 billion loss for the last three months of 2007 compared to a loss of $401 million in the fourth quarter of 2006.

Like its competitor Fannie Mae, which yesterday reported a fourth-quarter loss of $3.6 billion, Freddie Mac is a barometer of the broader trouble in the nation's housing market.

For all of 2007, Freddie Mac lost $3.1 billion ($5.37 per share), compared with a profit of $2.3 billion ($3 per share) in 2006.

Accounting changes improved Freddie Mac's bottom line for 2007 by $2.1 billion.

Freddie Mac's publication of its 2007 annual report marked its return to timely financial reporting years after an accounting scandal exposed pervasive problems in the systems it uses to report its results.

But five years after Freddie Mac disclosed serious accounting problems, the company says it is still assessing the effectiveness of certain internal controls.

Freddie Mac did not identify the shareholders who wrote to the board alleging mismanagement or the members of the special committee formed to look into the allegations.

The company said the letters alleged "corporate mismanagement and breaches of fiduciary duty in connection with the company's risk management." One of the letters demands that the board "implement corporate governance initiatives to ensure that the alleged problems do not recur."

Freddie Mac's annual report did not elaborate on the allegations.

The company has scheduled a conference call for later today to discuss its financial results with investors.

Here's a link to the company's release.

By Dan Beyers  |  February 28, 2008; 9:15 AM ET  | Category:  Freddie Mac
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Oops there goes another pack of greedy rich folk, and congress is investagating pro sports?

I worked at Freddie for a while and it was like rats jumping off a sinking ship. One day the parking lot had a bunch of cars and in the term of a month, they we're all gone?

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