Fannie Mae said Wednesday that it lost $3.6 billion during the fourth quarter as credit conditions took a large toll on the government-sponsored enterprise. The quarterly loss pushed Fannie to a $2.1 billion loss, or $2.63/share, for the full year. Earnings woes at the largest GSE were driven primarily by mark-to-market activity on derivatives holdings, leading to $3.2 billion in write-downs; Fannie also absorbed a $2 billion charge in building its credit loss reserves and an additional $600 million in impairment losses on mortgages and investments it moved into its held-for-sale portfolio. Despite the losses, Fannie saw its single-family guaranty market share nearly double in the fourth quarter, reaching 48.5 percent compared to 24.6 percent share one year earlier. Guaranty fee income -- the fee Fannie charges lenders to put its guaranty on a loan -- jumped 26.4 percent as well. Fannie Mae boosted its guaranty fee to the highest level in at least a decade last November. “Market dynamics, including declining interest rates and credit market illiquidity, had a pronounced impact on our bottom line in the fourth quarter of 2007,” executive vice president and CFO Stephen M. Swad said. “A substantial portion of losses in ‘07 came from mark-to-market valuation declines you would expect in a mortgage and credit market this volatile.” Saying that the company was "working through the toughest housing and mortgage markets in a generation," CEO Daniel Mudd said that defaults were particularly problematic, even within its prime mortgage portfolio. The number of properties Fannie acquired through foreclosure increased by 34 percent in 2007 over 2006, while loan loss severity more than doubled. A bearish turn, and walk-aways Fannie Mae's expectations for 2008's housing market have become significantly more bearish, as well. The GSE said it now expects to see nationwide price declines of 5 to 7 percent during the year, compared to the 4 to 5 percent decline it had estimated earlier. Likewise, the total estimated peak-to-trough price decline is expected to be 13 to 17 percent, compared to the 10 to 12 percent that Fannie had earlier expected. As a result, estimates of credit losses took a fairly large jump as well, with Fannie saying it expected a credit loss ratio of 11 to 15 basis points on its guaranty book of business for 2008; earlier estimates provided by the company had pegged that ratio at 8 to 10 basis points. But perhaps the most interesting aspect of Fannie Mae's forecast was a nod to borrowers walking away from their mortgages. The company said that estimating credit losses for 2008 was "uniquely challenging," citing in part "patterns of consumer behavior that deviate from historical patterns" as a driver of "extreme uncertainty around key factors" in its forecast. Notes The full 10-K filed with the SEC was a mind-numbing 98 pages in length ... Countrywide Financial accounts for 28 percent of Fannie Mae's single family business volume in 2007, and a combined BofA/Countrywide would boost that number to 32 percent of the GSE's total business ... Fannie purchased 11,997 loans worth $1.8 billion in UPB out of MBS trusts during Q4, up from 7,637 loans worth $899 million one year earlier ... Freddie Mac is scheduled to report its earnings tomorrow.