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Freddie's Profit Drops, but Share Of Market Rises

Edwin Groshans, who follows Freddie and Fannie for the Fox-Pitt, Kelton Inc. investment house in New York, said the 2004 results were encouraging on two fronts: Freddie's capital position was more than ample, and its market share grew.

Freddie's regulator, the Office of Federal Housing Enterprise Oversight, has ordered the company to maintain a capital position 30 percent above the minimum set by regulations. Freddie said yesterday its $34.9 billion in capital was $3.5 billion more than OFHEO ordered.

Freddie Mac had more than ample reserves, as it was $3.5 billion over the amount its regulator is requiring. (William Philpott -- Reuters)

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Freddie's market share, measured by the percent of mortgage-backed securities it issues relative to Fannie Mae, has historically hovered around 43 percent. But in 2003, as Freddie struggled with accounting and other problems, it slipped to 37 percent. Last year, as Fannie Mae's own accounting problems emerged, Freddie's market share bounced back to 41 percent.

Baumann would not project whether market share will continue to increase but said, "We think we're doing the right things in the marketplace to help that number along."

Analysts say the larger Fannie Mae, which has always had a bigger market share than Freddie, could lose market share this year.

"It presents a real opportunity for Freddie," Groshans said.

Eugene M. McQuade is the president of Freddie Mac and plans to take over as chief executive in 2007 when Syron retires. Syron became chief executive in 2003, and McQuade was hired as president in September, part of a broad revamping of the executive suite. Two chief executives, a president and a chief financial officer were ousted as a result of faulty derivatives accounting the company used to smooth out earnings.

Freddie spent $588 million on professional services -- accountants, consultants and lawyers -- to work on financial reporting and accounting systems in 2004, a $277 million increase from 2003.

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