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Freddie Mac Worse Than Feared

Freddie Mac, the mortgage giant, posted a loss more than three times what Wall Street predicted as more homeowners fell behind on payments. So what does this mean for those of you holding stock?

To preserve what little capital the company has left, they’re dropping dividends from 25 cents a share to a little less than 5 cents a share, on top of selling at least $5.5 billion in stock. This move sufficiently waters down the dividends for current stockholders while increasing Freddie’s balance sheets with the sale of more stocks.

The quarterly loss for common stockholders was $1.5 billion, as opposed to the same quarter last year earning $632 million in profits. The preferred stock-holders lost $821 million compared to a profit of $729 million a year ago. Freddie Mac is struggling to make ends meet and recover from the losses, but as more and more people fall behind on their overpriced mortgages, the company may be in serious trouble.

These stark numbers illustrate yet another reason to build a diverse stock portfolio. In times like these, having your money invested wisely in a few key areas will keep a larger loss like this from setting you too far back in your investing goals. Do you think the homeowner’s relief that Bush finally signed will do anything to help this situation? Do you own stock in Freddie Mac or Fannie May? Tell us how your portfolio is faring.  [USA Today]

Posted: 8/6/08