Fannie’s Losses Narrow to $1.2B, with Taxpayers on the Hook for Less

Fri, Aug 6, 2010


By: Carrie Bay

Fannie Mae’s second-quarter losses narrowed considerably from the demoralizing financials of the past several years that found the nation’s largest mortgage financier underwater itself in a sea of red ink.

The GSE reported late Thursday that it lost $1.2 billion during the second quarter of 2010, compared to a net loss of $11.5 billion the previous quarter. It’s Fannie’s smallest loss in more than three years. In addition, the company said it needs far less money from taxpayers this quarter – just $1.5 billion.

After its first-quarter loss, Fannie drew $8.4 billion from its line of credit with the Treasury. Since placed under government control in September 2008, the company has bled taxpayers of $85 billion. But Fannie Mae says now, if current market trends continue, it expects credit-related losses in 2010 to be lower than in 2009.

Fannie says its new loan book is performing exceptionally well, and it’s set aside enough money to cover most future losses on older loans, signaling that the cost of its bailout may be less than previously anticipated.

According to the GSE’s Q2 earnings report, it had to pay $1.9 billion in dividends to the Treasury last quarter for the bailout money it’s already received. With that expense added in, Fannie Mae’s net loss attributable to common stockholders in Q2 was $3.1 billion, or ($0.55) per diluted share, compared with a loss of $13.1 billion, or ($2.29)
per diluted share, in the first quarter of 2010.

“The company does not expect to earn profits in excess of its annual dividend obligation to Treasury for the indefinite future,” Fannie said in its earnings statement.

During the quarter, loans from Fannie Mae said its 2009-2010 book of business continued to perform solidly while credit-related expenses on the overall book of business decreased by more than $7 billion.

The GSE’s president and CEO, Mike Williams, attributed the improving numbers to a more conservative approach to underwriting and sharply reduced acquisitions of higher-risk loans.

Fannie Mae says the impact of these changes is shown in the 2009 and 2010 vintages of single-family mortgages, which have the lowest early serious delinquency rates of any loans the company has acquired in the last 10 years. The company currently anticipates that these loans will be profitable. According to Fannie Mae, almost all of the credit losses it’s realized from residential mortgages over the past two years are attributable to loans it purchased or guaranteed from 2005 through 2008.

“We are focused on sustainable homeownership, and our higher underwriting and eligibility standards reflect that,” Williams said. “Across our industry, we are seeing a more realistic approach to housing and lending that bodes well for the future.”

Total nonperforming loans in Fannie Mae’s guaranty book of business were $218.2 billion, compared with $223.9 billion as of March 31, 2010.

The company acquired 68,838 single-family REOs through foreclosure in Q2, compared with 61,929 the previous quarter. As of June 30, 2010, Fannie Mae’s inventory of REO homes was 129,310, compared with 109,989 as of March 31, 2010. The carrying value of its REO portfolio is $13 billion.

Fannie Mae says it has seen an increase in the percentage of properties that it is unable to market for sale in 2010 compared with 2009 – in most cases because the properties are still occupied, being repaired, or are within redemption periods, which lengthens the time a property is in REO inventory by an average of four to six months.

The company’s single-family foreclosure rate was 1.52 percent on an annualized basis in the second quarter. It’s seriously delinquent rate dropped to 4.99 percent.

Fannie Mae says that although it has expanded its loan workout initiatives to help borrowers keep their homes, it expects foreclosures to increase during the remainder of 2010 as a result of a weak economy and high unemployment.

During the first half of 2010, the company purchased or guaranteed an estimated $423 billion in loans, which includes approximately $170 billion in delinquent loans the company purchased from its single-family mortgage-backed securities (MBS) trusts.

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