Fannie Mae's Losses Narrow but Treasury Advance Requested

Fannie Mae is reporting a net loss of $2.4 billion for the fourth quarter of 2011 compared to a net loss of $5.1 billion in the third Quarter.  For the entire 2011 year it reports a net loss of $16.9 billion compared to $14.0 billion in 2010. 

The fourth quarter losses reflect $5.5 billion in credit-related expenses, most of which are related to its pre-2009 book of business and due largely to a decline in home prices.  The increase in net loss from 2010 to 2011 was attributed to a $6.1 billion increase in net fair value losses in 2011 due to losses in the company's risk management derivatives in 2011 caused by a significant decline in interest rates.  These fair value losses were offset by fair value gains related to mortgage investments, however only a portion of these investments is recorded at fair value in its financial statements.

The net worth of the company had a net deficit of $4.6 billion as of December 31 reflecting the $1.9 billion loss and its payment to Treasury of $2.6 billion in senior preferred stock dividends during the fourth quarter compared to $2.5 billion in Quarter Three.  The Federal Home Mortgage Finance Agency (FNFA), conservator of Fannie Mae, will submit a request to the Treasury Department for a draw of $4.57 billion to eliminate the net worth deficit.  This brings the total obligation of the company to $117.1 billion which will require an annual dividend payment to Treasury of 11.7 billion.  To date the company has paid $19.8 in dividends to the Treasury Department.

Net revenues, primarily Net Interest Income for the quarter was $4.53 billion compared to $5.48 billion in the third quarter and Net Losses and Expenses (including credit-related expenses) were $6.92 billion, down from $10.56 billion.  Net Losses in the two quarters were $2.41 billion and $5.09 billion and the total comprehensive losses were $1.9 billion and $5.28 billion for the third and fourth quarters respectively.

For the year net revenues were $20.44 billion compared to $17.49 billion in 2010.  Net Losses and Expenses were -$37.39 billion compared to -$31.59 billion for a Net Loss of -$16.86 billion, compared to -14.02 billion.  Total Comprehensive loss for the year was -$16.41 billion compared to -$10.57 billion.  The company will have paid $9.61 billion in dividends to the Treasury in 2011 compared to $7.70 billion in 2010.

Fannie Mae reports that 53 percent of its single-family guaranty book of business at the end of the year consisted of loans purchased or guaranteed since the beginning of 2009.  Single-family conventional loans added to the book since that date have a weighted average loan-to-value at origination of 68 percent and a weighted average credit score of 762. 

Single-family credit losses from 2009 through 2011 combined with the amounts the company had reserved for losses as of this report total approximately $140 billion.  By far the largest of these losses were attributable to single-family loans purchased between 2005 and 2008.  The company expects these losses will remain elevated because of further expected defaults in its legacy book of business and resulting charge-offs that will occur over a period of years.  Also, a significant portion of its reserves represent concession to borrowers when loans were modified and will remain in the reserves until the loans are fully repaid or redefault.

The company's single-family serious delinquency rate has decreased each quarter since the first quarter of 2010, attributable both to its home retention solutions and to its acquisition of loans with strong credit profiles.  The company expects that the delinquency rate will remain elevated due to home price changes, other macroeconomics changes, the length of the foreclosure process and the extent to which borrowers with modified loans continue to make timely payments.

Fannie Mae acquired 47,256 single family homes through foreclosure in the fourth quarter compared to 45,194 in the third quarter.  The company disposed of 51,344 REO properties in the quarter, down from 58,297 in the third quarter.  As of December 31, 1022 the company was holding 118,528 REO properties compared with 122,616 at the end of September and 162,489 on December 31, 2010.  The carrying value of the single-family REO was $9.7 billion compared with $11.0 billion at the end of the third quarter and $15.0 billion at the end of 2010.

The company's single family foreclosure rate in the third quarter for 1.13 percent annualized compared with 1.15 for the first three quarters of the year and 1.46 percent for 2010.