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Fannie May Posts Loss Of $2.2 Billion For Quarter

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The Washington Post

Published: May 7, 2008

WASHINGTON - Fannie Mae, a key source of mortgage funding, on Tuesday reported that falling home prices and rising defaults contributed to further losses for the government-sponsored company during the first quarter.

The company said it lost $2.2 billion, or $2.57 per share, in the three months that ended March 31, compared with a gain of $961 million or 85 cents per share in the comparable period a year earlier. Measured in relation to Fannie Mae's total mortgage guarantees, credit losses rose by 55.6 percent during the first quarter compared with the last quarter of 2007.

The loss came as a sign of further trouble in the mortgage and credit industries. Tuesday morning, Swiss bank UBS reported an $11 billion quarterly loss and said it will cut 5,500 jobs.
Fannie Mae plans to announce a series of initiatives to help troubled borrowers and reduce the fallout from the market crisis.

To shore up its own finances, Fannie Mae said it plans to raise $6 billion of new capital from investors, much of which will dilute the value of shareholders' stock. It also will cut the dividend it pays shareholders later this year.

However, once it raises the additional capital, Fannie Mae will be allowed to operate with a thinner financial cushion, the Office of Federal Housing Enterprise Oversight said Tuesday.

Chartered by the government to keep mortgage money flowing, Fannie Mae packages mortgages into securities for sale to investors, promising to make the payments if the borrowers default.
Fannie Mae owns or guarantees nearly $3 trillion in mortgage-related investments. Fannie Mae estimated Tuesday it was responsible for half of the mortgage-backed securities issued during the first quarter for single-family residences.

"Fannie Mae expects severe weakness in the housing market to continue in 2008," the company said.

Losses the company reported Tuesday affect the company's financial condition and its ability to aid the troubled market.
Fannie Mae said home prices fell faster than it expected in the first quarter, which helped drive its expenses for defaults, foreclosures and other credit problems to $3.2 billion, from $3 billion in the fourth quarter of 2007. The company increased its reserve for loan losses to $5.2 billion as of March 31, from $3.4 billion as of Dec. 31.

Many investors believe the government would have to bail out Fannie Mae if it faltered.

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