Fannie Mae Posts Big 3Q Loss; Asks Treasury for More Money

by devteam November 6th, 2009 | Share

Citing 22.0 billion of credit-related expenses, Fannie Mae Thursday nightrnannounced it lost a net $18.9 billion in the third quarter of 2009.  Losses in the second quarter totaled $14.8rnbillion and $30 billion in the third quarter of 2009.

The third quarter loss resulted in a net deficit of $15 billion as of Septemberrn30 and prompted the Acting Director of the Federal Housing Finance Agencyrn(FHFA) to request an additional infusion of that amount from the Department ofrnthe Treasury.  FHFA has asked that thern$15 million be made available by December 31.

The loss on a per share basis was $3.47, a substantial increase fromrnthe $2.67 loss posted last quarter, but a vast improvement over the $13 perrnshare loss during the third quarter of 2008.

Fannie reported net revenues of $5.95 billion in the third quarter, uprn6 percent from $5.6 billion in quarter two. rnRevenues were $4.05 billion during the same quarter last year.

Net losses and expenses totaled $24.97 billion.  They were $20.3 billion and $15.97 billion inrnthe second quarter and third quarter of 2008 respectively.

Net interest income was $3.8 billion, a 3 percent increasernquarter-over-quarter as lower funding costs more than offset a decline inrnaverage yield on interest-earning assets.

The $22 billion in credit related expenses includes provision forrncredit losses plus the expenses associated with foreclosed property.  The expenses were driven by increases in fairrnvalue charges from $5.5 billion in Quarter Two to $7.7 billion as therncorporation increased its acquisition of loans from MBS trusts in order tornpursue loan modifications.  These chargesrnare included in provisions for credit losses which increased to $21.9 billionrnfrom $18.2 billion in the second quarter.

Fannie Mae states that the credit performance of its guaranty book ofrnbusiness continued to deteriorate due to rising unemployment and falling housernprices.  The 2006 and 2007 vintage loansrnas well as loans in certain states and some higher-risk loan products accountedrnfor a disproportionate share of credit losses. rnThe company said “We expect that our credit losses and credit loss ratiornwill continue to increase for the remainder of 2009 and during 2010.  However we also believe that, absent furtherrneconomic deterioration, our credit-related expenses will be less in 2010 thanrnin 2009.

Loan loss reserves were $65.9 billion at the end of the quarter, anrnincrease of 10.8 billion from the end of the second quarter.  This represented 2.14 percent of Fannie'srnguaranty book of business in Quarter Three compared to 1.80 percent in QuarterrnTwo.

The company was carrying $198.3 in non-performing loans in its guarantyrnbook of business on September 30, up from $171.0 billion on June 30 and $119.2rnbillion at the end of 2008.  The carryingrnvalue of foreclosed properties was $7.3 billion in the third quarter, $6.2rnbillion in the second and $6.6 billion in the same quarter last year.

The funds requested from the Treasury Department this week will, whenrnreceived, eliminate Fannie Mae's net worth deficit as of September 30.  Treasury had earlier provided $10.7 billionrnto cure the net worth deficit at the end of Quarter Two.  Under the terms of the company's seniorrnpreferred stock purchase agreement with Treasury the requested draw willrnincrease the aggregate liquidation preference of the senior preferred stock torn$69.9 billion.  Fannie said it expects tornhave a net worth deficit going forward and will be required to again seekrnfunding from the Treasury Department.

The company reported its Making Home Affordable Program had placed arntotal of 189,000 Fannie Mae loans either in a trial modification program orrnfinal program as of September 30.  Fanniernalso administers the larger program with 60 servicers participating.  The program had 487,000 loans in a trialrnperiod or completed modification.

On September 1 Fannie Mae began to acquire loans refinanced under thernHome Affordable Refinance Program.  Byrnthe end of that month that had acquired or guaranteed approximately 626,000rnrefinances.   

Fannie Mae acquired 40,959 single family properties through foreclosurernin the third quarter compared to 32,095 in the second quarter.  At the end of September the total inventoryrnof single family REO properties was 72,275 compared to 62,615 during thernearlier period.

The mortgage credit book of business increased to $3.23 trillion fromrn$3.19 trillion in the second quarter. rnNew business acquisitions including MBS issuances acquired by others andrnFannies' own portfolio purchases were $234.7 billion versus $239.8 billion inrnQuarter Two.  The market share of newrnsingle-family mortgage-related securities was 44.0 percent.<pFannie said it had experienced strong demand forrnits debt securities throughout the year to date.  "We believe," the report said, "that ourrnstatus as a government-sponsored enterprise and continued federal governmentrnsupport of our business and the financial markets is essential to maintainingrnour access to debt funding.  Demand forrnour debt securities could decline in the future if the government does not extendrnor replace the Treasury credit facility which expires on December 31, 2009, andrnas the Federal Reserve concludes its agency debt and MBS purchase programsrnduring the first quarter of 2010, or for other reasons.  As of the date of this release, however, wernhave experienced strong demand for our debt securities that mature after thernscheduled expirations of the Treasury credit facility and Federal Reserve purchasernprograms.rnrn

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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