Mortgage firm Fannie prices $4.5 bln of securities

By Jennifer Ablan and Al Yoon

NEW YORK (Reuters) - Fannie Mae (FNM.N) priced $4.5 billion of securities on Thursday to shore up the balance sheet of the biggest provider of financing for U.S. home loans as it grapples with the worst housing slump in decades.

A $2.25 billion convertible preferred offering priced at a dividend rate of 8.75 percent, Fannie said in  statement. That was at the tight end of the indicated range of 8.75 percent to 9.25 percent.

Fannie also priced $2.25 billion of common stock at $27.50 per share, the mortgage financing firm said. Fannie shares closed down 4.89 percent at $27.63 on the New York Stock Exchange on Thursday. For details of the sale click on [nWEN5626]

Having posted three consecutive quarters of losses, Fannie needs cash to meet the demands of the U.S. housing market after more than a year of soaring delinquencies and falling home prices.

Fannie had been expected to raise $4 billion in securities, market sources looking at the deal told Reuters earlier. Investors were demanding three to four times the amount on offer, the sources said, before the pricing announcement.

"When these deals come, appetite is strong and the deals get done and priced almost instantly," Michael Kastner, head of fixed income at Sterling Stamos Capital Management in New York, said before the deal. "It's a sign the credit problem is resolving itself."

Other financial institutions are also raising capital after suffering losses from the mortgage-market meltdown. Citigroup Inc (C.N), the largest U.S. bank, sold $2 billion in non-cumulative perpetual preferred stock on Tuesday with a coupon of 8.5 percent.

Lawmakers and regulators have increased pressure on Fannie Mae and rival Freddie Mac (FRE.N) to do more to stabilize the housing market, especially in a presidential election year.

The importance of the two government-sponsored enterprises has increased after the credit crisis choked off Wall Street mortgage funds that fuelled cheap lending and helped inflate the housing bubble.

Raising capital is Fannie Mae's part of a bargain with the Office of Federal Housing Enterprise Oversight to reduce the amount of capital it keeps in reserve while generating more funds for lending.

OFHEO cut the excess capital required over the usual minimum in March to 20 percent from 30 percent, and intends to cut the level to 15 percent on its way to 10 percent by September.

Fannie Mae as of March held $42.7 billion in core capital, exceeding the minimum currently required by $5.1 billion.

The Washington-based company on Tuesday said it lost $2.5 billion in the first quarter, after preferred stock dividend payments, and said it could not predict when conditions would improve.

Steeper house price declines and foreclosures led it to boost its forecast for credit losses to its portfolio, to 13 basis points to 17 basis points from the 11 to 15 basis points range indicated in February.

Fannie Mae just raised a record $7 billion in capital in December, paying a fixed dividend of 8.25 percent for three years. Freddie Mac in November sold $6 billion in preferred stock at an 8.375 percent dividend for five years.

(Reporting by Jennifer Ablan and Al Yoon; Editing by Leslie Adler and Dayan Candappa) Keywords: FANNIEMAE/PREFERRED