Fannie Mae Loses $2.2B As Home Prices Fall Faster Than Expected

WASHINGTON — Fannie Mae reported losses of $2.2 billion in the first quarter and the nation's largest buyer of home loans said Tuesday it would cut its dividend and raise $6 billion in new capital, with expectations that the housing slump will persist into next year.

Home prices fell faster in the first quarter than Fannie Mae had expected, the government-sponsored company said, and it will open a $4 billion share offering immediately, with the remainder being offered in the "very near future."

Following the stock sale, Fannie Mae's federal regulator, the Office of Federal Housing Enterprise Oversight, will cut the capital surplus cushion the company has to maintain by 5 percentage points to 15 percent, with another five-point cut in September, provided there is "no material adverse change" in the company's regulatory compliance.

The company's estimated fair value of net assets as of March 31 was $12.2 billion, down 66 percent from $35.8 billion at the end of December.

Fannie Mae's first-quarter loss contrasts with a profit of $961 million in the January-March period last year. Fannie Mae reported on Tuesday that the early 2008 loss was equivalent to $2.57 a share. It earned 85 cents a share a year earlier.

Thomson Financial said Wall Street analysts had expected the company to lose 81 cents a share in the latest period. Washington-based Fannie Mae was forced to set aside $3.2 billion to account for bad loans.

Shares slid more than 6 percent, or $1.74, to $26.55 at the open of trade.

Amid the deepening housing downturn and the financial turmoil it sparked, the government has increasingly looked to Fannie Mae and its smaller government-sponsored sibling, Freddie Mac, to step up their role and help restore stability to the market by buying up mortgages and bundling and selling them as securities. Three-quarters of mortgage-backed securities are issued by the two companies.

Earlier this year the regulators reduced by a third the mandatory cash cushion that must be held by Fannie and Freddie, in order to free up an additional $200 billion to finance new mortgages and help existing homeowners battered by the roiling market to refinance into more affordable mortgages.

But analysts worry that the opening for Fannie and Freddie could put too much financial risk on the backs of the companies, which have taken multibillion-dollar hits from the foreclosure wave and have been hungry for capital. Critics have said that allowing the companies to take on more debt could threaten the global financial system.

On Tuesday,Fannie Mae said it would cut its dividend, starting in the third quarter, from 35 cents to 25 cents a share, freeing up around $390 million a year.

The company said it expects "severe weakness" in the housing market in 2008, bringing increased mortgage defaults and foreclosures.'

Moody's Investor Service warned earlier this year that it may lower its ratings on Fannie Mae because of diminishing capital.

Comments

[dadw5boys]

DON'T BUY THE LOANS UNTIL EACH ONE HAS HAD A NEW APPRAISAL!!!!!!

PROPERTY APPRAISERS FOR MOST OF THE DISCOUNT LOAN ORGINATORS WERE OVER VALUED FROM THE BEGINNING!!!!!!!!!!

HEY FBI, I KNOW YOU READING THIS, CHECK FOR COLLUSION IN THE HOME LOANS THAT ARE GOING BAD. I BET YOU FIND ALL THE HOMES WERE OVER VALUED BY 100K OR MORE!!!!

[Jeremiah256]

"Home prices fell faster in the first quarter than Fannie Mae had expected, the government-sponsored company said...". That's the problem. The government on all levels continues to underestimate the economic dominoes that are falling.

[nanotubz]

Not just the government, those financial wizards of Wall Street are in the same alternate dimension.

[joebaggadonuts]

This reminds me of something I heard in business many years ago... sure we lose money when we sell one, but we'll make it up in volume.

Fannie Mae says it will be feasting on increased guarantee money:

"We've got to get across a bridge where we don't miss the opportunities we have," Mudd said on Tuesday's call. "We will feast off this book of business we are putting on."

For instance, Fannie said the fees it takes to guarantee loans, as described by its weighted average G-fee, were up 24% in March from 2007 levels. Meanwhile, guaranty fee income rose to $1.75 billion in the first quarter from $1.1 billion a year earlier. Net revenue, reflecting guaranty, interest and other income, surged to $3.78 billion from $2.73 billion a year earlier. Like other financial institutions, Fannie is benefiting from the Fed's rate-cutting spree, which has created a bigger spread between the rates at which the company borrows and lends.

"Returns on our new business are well in excess of the cost of capital," finance chief Stephen Swad said.

Maybe they are right and the fed will hold their costs down and they will have a lot of new business going forward. Enough people agreed with them to push up their stock today.

I don't have the stomach to gamble on this particular bet.

[getoffmedz]

America slipped from "recession" right into full DEPRESSION and the lame administration hardly noticed.

That's right Bushies, DEPRESSION. You read it here, first.

Want more of this fiasco? Vote Republican.

[Shaddup]

So, can American government bail out America?

[WIpatriot]

Appears so....

[Mike169]

Maybe Mongolia will send us some yurts to live in.