Freddie Mac’s ’05 Earnings Fall 27%

Freddie Mac, the mortgage finance company recovering from $5 billion in accounting mistakes, said Tuesday that profit fell about 27% last year and that its regulator might limit the growth of its portfolio of home loans.

Net income was $2.1 billion, or $2.75 a share, compared with $2.9 billion, or $3.94, in 2004, the McLean, Va.-based company said. The decline, stemming from a reduction in the value of its home-loan guarantee business and a settlement of shareholder lawsuits, fell below the company’s preliminary estimate of $2.5 billion on March 31.

The release is the first full, detailed report on annual earnings by Freddie Mac after disclosures in 2003 that it understated net income to minimize earnings volatility. The company last year said it would start registering its common stock with the Securities and Exchange Commission after the report. Freddie Mac said Tuesday that it planned to start filing timely reports with the release of its 2006 full-year results.

Freddie Mac’s regulator, the Office of Federal Housing Enterprise Oversight, may require the company to take new remedial steps, Chief Executive Richard Syron said. The agency last week announced a limitation to the mortgage portfolio size of Fannie Mae in the wake of accounting mistakes at that company.

The new actions “could include consideration of portfolio growth limitations for some period of time,” Syron said without elaborating. “It is something we expect to be discussing with [the oversight agency]. At this very early date we have not started to look at ways we would adapt to the hypothetical.”

Freddie Mac will follow through on a previously announced plan to sell $2 billion in preferred shares and buy back $2 billion in common stock, President and Chief Operating Officer Eugene McQuade said.

Freddie Mac’s accounting errors, along with $10.8 billion in mistakes at larger rival Fannie Mae, prompted Congress to consider restraining the companies’ combined $1.4-trillion mortgage portfolios. A bill creating a tougher regulator for the companies is stalled in the Senate.

Shares of Freddie Mac fell 48 cents to $61.58.