NEW YORK, Nov 6 — Fannie Mae, the largest provider of funding for US home loans, said yesterday bad mortgages and a federal foreclosure prevention programme left it with a US$18.9 billion (RM64.2 billion) loss, forcing it to tap the Treasury again to plug a hole in its net worth.
Fannie Mae, seized by the government last year, said the quarterly loss stemmed from US$22 billion in credit-related expenses. These included charges on mortgages it bought out of securities as it modified loans under President Barack Obama’s foreclosure prevention plan.
The company also boosted its provision for credit losses in future quarters, and said it expects those impairments to increase this quarter and through 2010.
The assessment is dire for the housing market that has appeared to post a fragile recovery over the past several months with a rebound in home sales and prices in some regions.
The company’s expectations of future losses and need for Treasury cash complicate the issue of how to extricate it from taxpayer support, while also trying to prevent a more serious fallout in US housing.
“It appears evident that they will remain under conservatorship indefinitely,” said Rajiv Setia, a debt strategist at Barclays Capital in New York. “There is no way to privatise them in this environment. It could actually be a full decade before something like that happens.”
Fannie Mae said much of its energy in the third quarter went to implementing Obama’s Making Home Affordable Programme.
Under the programme, mortgage companies are urged to refinance or modify loans for homeowners facing foreclosure. But the programme also means that Fannie Mae and rival Freddie Mac, which guarantee a vast portion of US mortgages, must extract the loans from securities and often recognize a loss.
Serious” delinquencies 90 or more days past due, or in foreclosure, increased as the company urged mortgage servicers to seek ways to keep borrowers in their homes. Rising unemployment prevented borrowers from finding alternatives, it said.
Including US$883 million in dividends paid on preferred stock already owned by the government, Fannie Mae’s loss attributed to common shareholders grew to US$19.8 billion. That compares with a loss of US$15.2 billion in the second quarter.
Net revenue climbed to US$5.9 billion in the third quarter from US$5.6 billion in the second quarter, the company said.
Shares of Fannie Mae, which were nearly wiped out as the regulator took control in September 2007, tumbled 7.1 per cent after it reported results in extended after-hours trade.
The Federal Housing Finance Agency, Fannie Mae’s regulator, has requested US$15 billion from the Treasury under a senior preferred stock agreement, which will increase the total government support to US$60.9 billion.
“We expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement,” Fannie Mae said in a statement.
Fannie Mae said continued government support is essential to its access to the debt markets, where it raises money to support loans through its US$793 billion portfolio. Currently strong demand for its debt could decline if the Treasury does not extend or replace its credit facility after December 31, and as the Federal Reserve ends its purchase programme.
The Washington-based company also said it is waiting for the US Treasury to approve a deal to transfer low income housing tax credits with a carry value of US$5.2 billion to unnamed investors.
The Wall Street Journal has reported that Goldman Sachs Group Inc in talks to buy tax credits from Fannie Mae but Treasury is wary about approving a deal that would help the bank reduce its tax bill. A Goldman spokesman declined to comment at the time of the story.
The FHFA has told the housing finance company it does not object to transferring the tax credits, which are incentives designed to spur investment in low-income housing. — Reuters
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