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More bad news for Freddie Mac -

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ELEANOR HALL: While employment numbers are up in Australia, there's more bad economic news in the
United States today where there are warnings that the worst housing slump since the Great
Depression might only be half over.

The troubled mortgage giant Freddie Mac posted a quarterly loss three times greater than analysts
had expected and its predicting that far from stabilising, real estate values in the United States
are set to fall by another 20 per cent.

Here's our business editor Peter Ryan.

PETER RYAN: Freddie Mac, along with its sister company Fannie Mae manages or guarantees a
mind-boggling $6-trillion in outstanding US mortgages.

Both have taken the brunt of the worst housing slump since the Great Depression, prompting the US
Congress to pass laws allowing a taxpayer-funded bailout if necessary.

It's a scenario looking more likely each day if the gloomy tones of Freddie Mac's chief executive
Richard Syron are any indication.

RICHARD SYRON: As we'll all painfully aware, the housing correction has had a severe impact on the
US economy. Lower residential construction, declining home equity and weak consumer confidence have
shaved about two points off US GDP growth.

PETER RYAN: Everyone knew it was going to be a tough quarter, but today's $821-million loss was
three times worse than analyst expectations.

Freddie Mac shares fell almost 20 per cent on Wall Street after the news and the stock is now down
90 per cent on a year ago.

So when will the turmoil end? With one in every 10 US mortgages on the brink of foreclosure,
Freddie Mac's Richard Syron says there's no end in sight.

RICHARD SYRON: Recent data have prompted us to increase our estimate of future house price
declines. Previously we said house prices would fall at least 15 per cent nationally peak to
trough.

Today's challenging economic environment suggests that the housing market is far from stabilising.
As a result, we now believe that national home prices will fall 18 to 20 per cent peak to trough,
but the long and the short of it is we now think that we're about half way through the overall peak
to trough decline.

PETER RYAN: To fund the weakness, Freddie Mac has widened it loss provisions and has slashed its
dividend by 80 per cent - down to just five cents a share.

And the outlook has pushed shares in the larger Fannie Mae down 15 per cent as speculation of
direct intervention by the US Treasury to buy Fannie and Freddie stock is not far away.

In a presidential election year, it adds up to a treacherous economic environment where no expert
is game enough to say the worst is over.

JOHN RYDING: I think it really just has to be another indicator that this crisis is not behind us.

PETER RYAN: John Ryding of RDQ Economics, like most of his colleagues, worries about what might
happen next.

JOHN RYDING: Each time it looks like things have settled down there comes a reminder that there is
something more out there and the turmoil that we've been in for the last month or so since the
mortgage GSEs (government sponsored enterprises), Fannie and Freddie, really came into the news and
we had the Paulson plan, the Fed opened the discount window, it's just another reminder that we are
far from out of the woods and it's still going to take some considerable time for the markets to
heal.

PETER RYAN: Freddie Mac, like Fannie Mae, was created by the US Congress decades ago to boost home
ownership levels for middle-class families. But some observers argue the two companies went well
beyond their brief.

THOMAS STANTON: Freddie Mac has always gone close to the edge.

PETER RYAN: Thomas Stanton, a fellow at Johns Hopkins University in Washington, believes Freddie
Mac and Fannie Mae became hostage to the once booming and now plunging US property market.

THOMAS STANTON: They are probably the most thinly capitalised financial institution in the United
States.

Mr Syron is quoted as saying, in order to fulfil their mission they must be thinly capitalised.
That isn't true. Freddie Mac in fact could have a lot more capital, say comparable to commercial
banks, and still fulfil its mission.

But high leverage traditionally has given shareholders high returns. In 2002 Freddie reported a
return on equity of over 47 per cent. So Freddie has long enjoyed the benefits of high leverage and
now it's coming back to haunt them.

PETER RYAN: Despite today's updated pessimism, Wall Street closed around a third of one per cent
stronger, focusing on a better than expected result from the IT giant Cisco Systems and a lower
price for crude oil, now US$118.58 a barrel.

But as the housing slump deepens, Freddie Mac is continuing its search for a new chief executive.
Given the dire outlook, Richard Syron admits the hunt is taking longer than the Freddie Mac board
had hoped.

ELEANOR HALL: Business editor Peter Ryan.