WASHINGTON, DC - Fannie Mae, the giant mortgage finance company, reported a big quarterly loss Monday and indicated that it could be forced to seek government financing early next year. The company's results suggested that home prices are far from a bottom and that the United States would probably have to pump tens of billions of dollars into Fannie Mae and its sister company Freddie Mac. U.S. regulators took control of the two companies in September and the Treasury Department said it would invest up to $100 billion in each but it had not yet put any money into the companies.
Fannie Mae said it lost $29 billion, or $13 a share, in the third quarter, compared with a $1.4 billion loss in the period a year ago. Much of that loss was a result of a $9.2 billion charge for credit losses and a $21.4 billion write-down of deferred tax assets that will probably be worthless. "Credit losses are rising, and need for reserves is still increasing," said Moshe Orenbuch, an analyst who follows Fannie and Freddie for Credit Suisse. "This is bad news, not just for Fannie, but for the whole economy. The message from these results is that we're going to continue seeing housing problems for at least a year."
Fannie Mae said the number of loans in its portfolio that were in foreclosure or delinquent by more than three months jumped to 1.72 percent in September, up from 1.36 in June and 0.78 percent in September 2007. That increase tracks closely with falling home prices. Fannie Mae estimates that home prices have fallen 9.7 percent from their peak in the second quarter of 2006 and that they will fall a total of 19 percent before hitting bottom.
The steep decline in home prices and rising delinquency rates suggested that Fannie and Freddie may need more capital than what analysts and policy makers previously thought, said Steve Persky, chief executive of Dalton Investments in Los Angeles. "Prices are going to decline and losses grow for the foreseeable future," he said. "If they are talking about taking money now, it means they are eventually going to take more than we probably expected over the long run."
It is unclear how much money Treasury might have to put into the companies. Fannie Mae said it had $9.3 billion of capital after its write-downs. But the company said it would have a capital deficit of $46.4 billion if it calculated its securities on a "fair value basis," or according to what they would fetch in the market.
Last month, the Federal Housing Finance Agency, the regulator that oversees Fannie Mae and Freddie Mac, eliminated minimum capital requirements on both companies while they are under U.S. government control to give them more flexibility.
Policy makers need Fannie Mae and Freddie Mac to be healthy because the companies are financing about 70 percent of all home loans being made. When other agencies like the Federal Housing Administration are included, the U.S. government's share of the mortgage market climbs to as much as 90 percent.
Source: The Business Journal