Fannie Seeks $15bn of Aid After Quarterly Loss
Government-sponsored entity (GSE) Fannie Mae (FNM) on Friday reported a $15.2bn net loss for Q409, narrowed slightly from a $18.9bn net loss in the previous quarter. The quarterly loss resulted in a net worth deficit of $15.3bn as of Dec. 31, 2009, according to the earnings statement (download here). To cure this deficit, Fannie's conservator - the Federal Housing Finance Agency (FHFA) - requested $15.3bn from the Treasury Department. These funds, which Fannie asked to be delivered by the end of March, would come through the Treasury's previous senior preferred stock purchase agreement. “Through this prolonged stress in the housing market, we are helping homeowners across the country, supporting affordable housing, and providing financing to keep the residential markets functioning,” said Fannie president and CEO Mike Williams. He added: "Our overriding objective is keeping people in their homes whenever possible. At the same time, we want to help build a stronger foundation for housing in America by supporting sustainable homeownership. That means offering home buyers mortgages with terms that enable them to keep their homes, not just purchase them." Credit-related expenses of $11.9bn, including credit loss provision and foreclosed property expense, drove the quarterly loss, along with the recognition of a $5bn loss on Fannie's low-income housing tax credit (LIHTC) investments. In November, the Treasury denied Fannie's request to transfer half of the equity interests in its LIHTC investments to unrelated third-party investors. When the FHFA told the GSE it could not sell or transfer its LIHTC partnership interests and no other disposition options were available, Fannie wrote-down the carrying value of the LIHTC investments to zero, thereby taking the $5bn loss. The Q409 loss brings the full year 2009 net loss to $72bn, compared with $58.7bn in 2008. Fannie reported $216.5bn of nonperforming loans in its guaranty book of business as of year-end 2009, compared with $198.3bn at the end of the previous quarter and $119.2bn at the end of 2008. The carrying value of Fannie foreclosed properties is also on the rise, totaling $8.7bn by year-end. This compares with $7.3bn of foreclosed properties as of the end of Q309, and $6.6bn as of year-end 2008. “During 2009, we made changes to our pricing and eligibility criteria that we hope will advance an industry-wide focus on sustainability – and ultimately contribute to the recovery and long-term health of the housing market," Williams said. "As a result, we have seen a substantial improvement in the credit characteristics of loans that we acquired in 2009. While it is too early to predict the ultimate performance of these loans, we believe that the credit risk characteristics of our 2009 loan acquisitions are the strongest for any acquisition year in the past decade.” Write to Diana Golobay. Disclosure: The author holds no relative investment positions.