Fannie Needs More Money But Losses Shrink

Fannie Mae posted yet another multi-billion dollarrnloss during the second quarter of 2011 according to papers filed with thernSecurities and Exchange Commission on Friday. rnWhile the net loss for the quarter was $2.9 billion, the picturernimproved significantly over the first quarter when the loss totaled $6.5rnbillion.  In the second quarter of 2010rnthe company lost $1.2 billion.  FanniernMae has requested an additional draw of $5.1 billion (the post-Q1 drawdown wasrn$8.5 billion and one year ago it was $1.5 billion) which will bring Treasury’srntotal investment in the government sponsored enterprise to 104.8 billion sincernit was placed in conservatorship in August 2008.</p

The company attributed the quarterly loss to $6.1rnbillion in credit-related expenses, the majority of which were due to loansrnoriginated and acquired pre-2009.  In thernfirst quarter credit-related expenses totaled $11.0 billion and one year agornthe expenses were $4.85 billion.  FanniernMae said the much higher number in Q1 was driven by a deterioration of homernprices which abated in Q2.  </p

In a press release accompanying the second quarterrnresults the company said the loss “reflects the continued weakness in the housingrnand mortgage markets, which remain under pressure from high levels ofrnunemployment, underemployment, and the prolonged decline in home prices.”  The corporate policy of pursuing loanrnmodifications also contributed to the loss. rnFannie Mae expects its credit-related expenses to remain elevatedrnthrough the rest of the year due to the aforementioned factors.</p

At the same time it is requesting an additionalrndraw, Fannie Mae is paying a dividend to the Treasury of $2.3 billion on thernsenior preferred stock it holds.  Thisrnbrings the total dividend payments to Treasury to $14.7 billion since thernconservatorship began.  </p

The company received $4.97 billion in interestrnincome during the quarter, virtually identical to that received in Quarter Onernand $765 million more than the second quarter of 2010.  Net revenue was $5.24 billion compared torn$5.2 billion and $4.5 billion in the two earlier periods.   </p

Fannie Mae’s Single-Family guaranty book of businessrnwas 2.88 trillion as of June 30, 2011, down from 2.90 trillion at the end of thernfirst quarter.  Income from this book wasrn$1.9 billion in both quarters resulting in a loss of $5.0 billion in the secondrnquarter compared to a $10.7 billion loss in the first.  The losses, again, were due to credit relatedrnexpenses attributable to loans purchased from 2005 through 2008.  At the end of the quarter 47 percent ofrnFannie Mae’s Single-Family Book of Business consisted of loans purchased orrnguaranteed since January 2009. rnConventional loans originated during that period have a weighted averagernloan-to-value ratio at origination of 68 percent and a credit score of 761.  The 2005-2008 acquisitions are becoming arnsmaller percentage of the company’s guaranty book of business.  That vintage of loans accounted for 39 percentrnof the book at the end of December and is now 34 percent.</p

The single-family serious delinquency rate hasrndecreased every month since February 2010, due in large part to home retentionrnsolutions, foreclosure alternatives, and completed foreclosures.  Acquisition of loans with stronger creditrnprofiles as outlined above have also resulted in fewer loans becomingrndelinquent.  The company expects the raternto be affected into the future by home price changes, other macroeconomicrnconditions, the length of the foreclosure process, and the continued success ofrnmodification programs.</p

The multi-family guaranty book was valued at $191.5rnbillion in Q2 compared to $190.6 billion in Q1. rnSingle-family credit-related expenses in the second quarter were almostrndouble that of the first quarter, $126 million compared to $65 millionrnresulting in a drop in earnings from $247 million to $87 million.</p

CapitalrnMarkets’ net interest income was $3.9 billion in the second quarter ofrn2011, compared with $3.7 billion for the first quarter of 2011. Fair valuernlosses were $1.5 billion, compared with fair value gains of $218 million in thernfirst quarter of 2011. The net mortgage investment portfolio balance decreasedrnto $731.8 billion as of June 30, 2011, compared with $757.6 billion as of Marchrn31, 2011, resulting from purchases of $32.8 billion, liquidations of $37.0rnbillion, and sales of $21.6 billion during the quarter. Capital Markets earnedrn$2.8 billion in the second quarter of 2011, compared with $4.3 billion in thernfirst quarter of 2011.</p

During the quarterrnFannie Mae took 54,697 homes into its owned property (REO) inventory, virtuallyrnthe same number as a quarter earlier, and disposed of 71,202 propertiesrncompared to 62,814 in Q1.  The companyrnholds 135,719 properties in REO, a decrease of 17,500 since the end ofrnMarch.  The foreclosure rate was 1.20rnpercent in the second quarter, a fractional increase over the first quarter andrndown from 1.52 percent one year ago.  Thisrnchange is partially due to the lengthening time required for foreclosures whichrnFannie Mae attributes to the changing foreclosure environment in somernstates.  This changing time-frame will,rnFannie Mae said, will continue to negatively impact timelines, foreclosurernrates, and credit related expenses and will delay the recovery of the housingrnmarket.

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