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

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

The third quarter loss resulted in a net deficit of $15 billion as of September 30 and prompted the Acting Director of the Federal Housing Finance Agency (FHFA) to request an additional infusion of that amount from the Department of the Treasury.  FHFA has asked that the $15 million be made available by December 31.

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

Fannie reported net revenues of $5.95 billion in the third quarter, up 6 percent from $5.6 billion in quarter two.  Revenues 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 in the second quarter and third quarter of 2008 respectively.

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

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

Fannie Mae states that the credit performance of its guaranty book of business continued to deteriorate due to rising unemployment and falling house prices.  The 2006 and 2007 vintage loans as well as loans in certain states and some higher-risk loan products accounted for a disproportionate share of credit losses.  The company said "We expect that our credit losses and credit loss ratio will continue to increase for the remainder of 2009 and during 2010.  However we also believe that, absent further economic deterioration, our credit-related expenses will be less in 2010 than in 2009.

Loan loss reserves were $65.9 billion at the end of the quarter, an increase of 10.8 billion from the end of the second quarter.  This represented 2.14 percent of Fannie's guaranty book of business in Quarter Three compared to 1.80 percent in Quarter Two.

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

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

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

On September 1 Fannie Mae began to acquire loans refinanced under the Home Affordable Refinance Program.  By the end of that month that had acquired or guaranteed approximately 626,000 refinances.   

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

The mortgage credit book of business increased to $3.23 trillion from $3.19 trillion in the second quarter.  New business acquisitions including MBS issuances acquired by others and Fannies' own portfolio purchases were $234.7 billion versus $239.8 billion in Quarter Two.  The market share of new single-family mortgage-related securities was 44.0 percent.

Fannie said it had experienced strong demand for its debt securities throughout the year to date.  "We believe," the report said, "that our status as a government-sponsored enterprise and continued federal government support of our business and the financial markets is essential to maintaining our access to debt funding.  Demand for our debt securities could decline in the future if the government does not extend or replace the Treasury credit facility which expires on December 31, 2009, and as the Federal Reserve concludes its agency debt and MBS purchase programs during the first quarter of 2010, or for other reasons.  As of the date of this release, however, we have experienced strong demand for our debt securities that mature after the scheduled expirations of the Treasury credit facility and Federal Reserve purchase programs.