Freddie Mac has reported that its net income fell 27% to $2.1 billion last year, from $2.9 billion in 2004, primarily because of $600 million in costs associated with settling securities litigation, charges related to Hurricane Katrina, and certain accounting changes.Freddie Mac also warned that its earnings would likely show increased volatility in the future due to "asymmetric mark-to-market accounting treatment" of certain assets and liabilities. Those accounting changes affect another measure of Freddie Mac's performance, the value of net assets, before capital transactions, attributable to common shareholders. The net value declined slightly last year, to $26.7 billion at the end of 2005. In a conference call with investors and analysts, Freddie Mac executive vice president Patricia Cook said wider mortgage-to-debt option-adjusted spreads reduced the fair value of net assets, but that the wider spreads will actually benefit Freddie Mac in the long term. Freddie Mac chairman and chief executive Richard Syron and chief operating officer Eugene McQuade said the fundamentals of the business remain good, stressing that Freddie Mac gained market share last year and exceeded a 30% surplus capital target by some $3.5 billion.

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