Moody's says may cut Fannie Mae financial strength

The headquarters of mortgage lender Fannie Mae is shown in northwest Washington October 3, 2006. Moody's Investors Service on Thursday said it may cut its bank financial strength rating on Fannie Mae, the largest provider of financing for U.S. home loans, after it reported a $3.6 billion quarterly loss.

LONDON (Reuters) - Moody's Investors Service on Thursday said it may cut its bank financial strength rating on Fannie Mae FNM.N, the largest provider of financing for U.S. home loans, after it reported a $3.6 billion quarterly loss.

Moody's however said it affirmed Fannie Mae's Aaa senior debt and Prime-1 short-term debt ratings with a stable outlook.

"This loss exceeded our expectations and represents a significant deterioration of surplus regulatory capital," Moody's said in a statement.

The agency warned that it expected Fannie Mae to report sizeable losses in the first half of 2008, and possibly a net loss for the year, due to continued deterioration in U.S. residential mortgages.

However Moody's said that its concerns were partially mitigated by news that regulator the Office of Federal Housing Enterprise Oversight may decrease the amount of surplus capital required to be held, reducing the probability Fannie Mae would breach the minimum.

(Reporting by Richard Barley; Editing by David Cowell)