Fannie Mae says improves loan quality, share value

NEW YORK (Reuters) - Fannie Mae, which reported its third quarterly loss on Tuesday and said it plans to raise $6 billion in added capital as credit losses mount, said it is improving its mortgage portfolio and shareholder value with housing in the middle of its cycle.

"Right now, we are in the belly of this cycle," Daniel Mudd, Fannie Mae's chief executive, said in a conference call. "The initial period of (disruption) in the marketplace appears to be dissipating. The capital markets are recovering balance."

Fannie Mae shares reversed early losses to jump 6 percent to $29.97 as the conference call assured investors.

"As the market recovers, we will be a prime beneficiary," Mudd said.

In the conference call, Robert Levin, chief business officer, said the company would keep adjusting pricing and fees to better reflect U.S. mortgage market risk.

The fee that Fannie Mae charges for its guarantee on mortgage bonds rose in the quarter, for example, and will increase again in June, he said.

The capital it raises should enable the company to keep expanding its portfolio, as well as its single-family and multi-family businesses, he said.

Fannie Mae committed in April to buying $28 billion in assets, almost four times its average monthly commitments in the first quarter, Levin said.

Altered hedge strategies also should stem losses.

"We have stanched the bleeding from some of our volatile mark-to-market items that have created uncertainty in our bottom line and capital planning," he said.

"This bleeding was about $3 billion in the fourth quarter and over $4 billion in the first quarter, mostly because of the derivative mark-to-market," Levin added. "We do not expect to see numbers of this magnitude going forward because of our new hedge accounting."

(Reporting by Lynn Adler in New York and Patrick Rucker in Washington; Editing by Jan Paschal)