Freddie Mac's core asset-quality metrics are quite strong. Serious delinquencies are rising, but are still at the low level of 51 basis points (bps). Likewise, net credit losses remain quite low at 2.2 bps. The sizable loan-loss provision has significantly increased Freddie Mac's reserve position, which is holding two years' coverage of net credit losses as of the end of third-quarter 2007. However, given the weakness in the national mortgage and housing markets and the illiquidity of nonagency mortgages in the capital markets, the lower pricing of mortgage credit is having a negative impact on Freddie Mac's GAAP earnings. Freddie Mac is looking to market-based pricing to value delinquent loans (120 days past due) that it repurchases from its MBS
