Freddie Mac, the nation's second-largest government-sponsored enterprise, said Thursday that it lost a record $2.45 billion, or $3.97/share, during the fourth quarter of 2007. The loss pushed the GSE to a $3.1 billion net loss, $5.37/share, for the full year. "Today's economy represents one of the most severe housing downturns in American history," said Freddie CEO Richard Syron, in a press statement. "We remain extremely cautious as we enter 2008," he said. "If the economy weakens substantially from here--a possibility for which we need to be prepared as a company--it will have a further negative effect on homeowners across the country and drive credit costs higher." Credit costs are already high at Freddie, which reported realized credit losses at an annualized rate of 5.4 basis points of the total mortgage portfolio, or $236 million, during the fourth quarter, as more borrowers found themselves defaulting on their mortgage obligations. Total credit costs stood at 3.0 basis points, or $126 million, one quarter earlier. Beyond the effect of increasing credit costs, Freddie also absorbed $1.3 billion in losses on its credit guarantees, primarily related to higher expected future credit costs, it said. As a result of the continuing deterioration in the U.S. housing market, the GSE said Thursday that it had revised its estimate of total credit losses for 2008 and 2009 to $2.2 billion and $2.9 billion, respectively. By way of comparison, total credit losses for all of 2007 were just $499 million. ABS exposure, delinquency and defaults Freddie Mac's $154.1 billion ABS investment portfolio is highly exposed to subprime RMBS, with $100.3 billion of the total portfolio invested in subprime -- the GSE reported that 21 percent of the subprime loans backing the senior positions it holds are 60 or more days delinquent. The portfolio has seen quick deterioration to start the new year: 96.7 percent of the subprime MBS held by Freddie were rated 'AAA' at the end of 2007. As of February 25, however, less than 82 percent of those same bonds retained that same 'AAA' rating, underscoring that the credit crisis affecting mortgage markets nationwide has yet to subside. Non-performing assets at Freddie jumped 93 percent during 2007, Freddie said, while REO volume jumped 63 percent. At the end of 2007, Freddie Mac reported 14,394 properties in REO inventory, compared to 8,785 one year earlier. Freddie Mac's shares closed down 2.4 percent, to $24.49, on the New York Stock Exchange on Thursday. Notes Much like sister GSE Fannie Mae, Freddie Mac buried analysts under a mountain of financial reporting data that had one remarking "if this is what regulators have mandated, I want a new mandate for brevity" ... despite the losses, Freddie Mac CFO Buddy Piszel said the GSE is well capitalized to ride out an extended downturn in the U.S. housing market. Disclosure: The author held no positions in FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.