The Real Deal Miami

Freddie reports 2Q loss as fall-out from downgrade continues

August 08, 2011 06:27PM

Freddie Mac reported a second-quarter loss of $4.69 billion and then asked the government for $1.5 billion in federal aid, as the fallout from Standard & Poor’s downgrade of the U.S. credit rating continues. The S&P had also downgraded both Freddie Mac and Fannie Mae earlier today.  

While the Dow closed down 634 points, President Barack Obama said at a press conference this afternoon that the U.S. credit rating is still very good in spite of the downgrade. “Markets will rise and fall, but this is the United States of America. No matter what some may say, we’ve always been and we’ll always continue to be a AAA country,” he said. Today was the largest stock market drop since December 2008 and the sixth largest point drop in history.

He said that for a recovery to take, tax reform would be necessary, as well as compromises on overhauls of government health care programs like Medicare. He also called on Congress to maintain the payroll tax cut and extend unemployment benefits, and said that he would submit more recommendations for long-term plans in the next few weeks. 

Investors were selling off their stocks in order to put their money in what they considered safer places, as they were not only shaken by the downgrade, but also other troubling economic indicators, and fear of a double dip recession. Even though many investors expected the downgrade, the European debt problem compounded the issues. 

Going forward, the downgrade could also provoke homebuyer anxiety, even though the downgrades themselves don’t seem to have had much impact on the mortgage market. But psychology and consumer confidence could suffer more than mortgage rates. “Who wants to get out of bed today, let alone buy a house?” said Lou Barnes, a mortgage banker in Boulder, Colo.  

The Senate Banking Committee plans to look into S&P’s downgrade and has begun gathering information for its inquiry. 

Meanwhile, S&P defended its downgrade, even as Moody’s maintained its AAA rating of the U.S. 
Miranda Neubauer