A foreclosed house for sale in Los Angeles.
A foreclosed house for sale in Los Angeles. - 
Listen To The Story


KAI RYSSDAL: Freddie Mac announced this morning it lost $2 billion last quarter. Its shares plummeted almost 29 percent. D.R. Horton, the country's biggest homebuilder, said it lost $50 million in the same period. And pity the press officer at Countrywide. The mortgage lender spent the day denying bankruptcy rumors. Then there's this: Earnings at the nation's savings and loans have plunged. That's right -- mortgage problems.

Our New York bureau chief, Jill Barshay, explains.

JILL BARSHAY: Investors piled into savings and loan stocks in August. Back then they looked like a safe haven from the subprime mess. Scott Polakoff is the chief operating officer at the Office of Thrift Supervision. He says S&L earnings fell 84 percent in the third quarter.

SCOTT POLAKOFF: It's been a long time since we've seen that kind of drop -- almost 15 or 16 years ago.

Polakoff says large thrifts who sell mortgages to investors took some of the biggest losses. They had to write down some of the mortgages on their books when they couldn't sell the loans.

POLAKOFF: You have a pipeline of loans that you put into inventory before you sell. As the secondary market liquidity seized up, the prices for those loans fell, not the credit quality, but the prices for those loans fell. That caused institutions who hold those loans for sale to have to adjust them.

Those secondary markets still haven't recovered, but regulators say the big thrifts that rely on them are still flush with cash. Bob Davis is with America's Community Bankers. It represents the thrift industry. He says most thrifts don't use the secondary market. They keep the loans they make on their books. He says the vast majority of the nation's 800 S&Ls are fine.

BOB DAVIS: Probably that decline of profitability has nothing to do with your local institution, particularly if it is a community bank.

Still, the OTF's Polakoff says thrift execs think the housing market will get worse. They've diverted money away from this year's profits to cover future mortgage defaults. Over the next 12 to 18 months, some consumers may find it a lot harder to get a loan.

In New York, I'm Jill Barshay for Marketplace.