Fannie Mae Posts $2.3B Loss on Defaults, Cuts Dividends

Friday, August 8, 2008 9:07 AM

Fannie Mae, the largest U.S. home funding source, on Friday posted its fourth straight quarterly loss as home loan defaults increased and said it would slash its dividend more than 85 percent and take other steps to shore up its capital position.


Just three weeks after U.S. authorities took sweeping measures to support Fannie Mae and smaller rival Freddie Mac, the Washington-based company reported a greater-than-expected loss of $2.3 billion, excluding preferred dividend payments, or $2.54 per share in the second quarter.


That compared with a profit of $1.95 billion, before preferred dividend payments, or $1.86 a share, a year earlier.


Analysts polled by Reuters Estimates expected Fannie Mae to report a loss of 97 cents per share.


The loss, exacerbated by $5.3 billion in credit expenses stemming from the worst housing market since the Great Depression, follows a loss of $2.51 billion, or $2.57 per share, in the first quarter of 2008.


"Volatility and disruptions in the capital markets became even more pronounced in July," Fannie Mae Chief Executive Daniel Mudd said in a statement.


"In addition, credit performance has continued to deteriorate and, based on our experience in July, we anticipate further increases in our combined loss reserves," Mudd said. "Given this volatility and the build-up of our reserve, as well as the uncertainties inherent in the U.S. economy and the housing market, we are taking a series of additional actions that reflect our ongoing focus on conserving and enhancing our capital, as well as managing our credit risk through the balance of this cycle."


Fannie Mae and Freddie Mac own or guarantee more than $5 trillion in mortgages, or nearly half of all U.S. home loans.


Fannie Mae said it raised more than $7 billion in added capital in the second quarter.


Still, fears that slumping home prices and record foreclosures had eaten away capital at Fannie Mae and Freddie Mac, the second-largest provider of U.S. residential mortgage financing, swept their shares to 17-year lows last month.


The swift share erosion came as the government relied more heavily on the two companies to buy mortgages, helping free up money for more lending and restore order to turbulent markets.


U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke arranged for emergency measures, signed into law last week by President Bush, to broaden government backing for Fannie Mae and Freddie Mac.


Fannie Mae share slid more than 12 percent to $8.69 before the bell.


The company's weaker-than-expected result comes just two days after Freddie Mac also disappointed investors with a steeper-than-expected loss totaling $821 million. Like Fannie, Freddie also said it would slash its dividend and shore up its capital.



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