Fannie Mae posts loss

By Lynn Adler

NEW YORK (Reuters) - Fannie Mae (FNM.N) on Tuesday cut its dividend and set plans to raise $6 billion (3 billion pounds) in fresh funds to weather the severe U.S. housing market slump, driving its shares and the broader U.S. stock market lower.

The company, the largest provider of U.S. home financing, also posted a deeper-than-expected quarterly loss, its third in a row, and said it expected more trouble ahead.

House prices, by some measures already 15 percent below their peak in mid-2006, likely will drop as much as another 9 percent this year and related credit losses will keep rising into 2009.

"I'm not sure if I'm more disappointed about the earnings for this quarter or for the (housing) outlook for next year," said Charles Lieberman, chief investment officer of Advisors Capital Management in Paramus, New Jersey. "They are clearly still having repercussions from the subprime and market valuation problems."

Home price declines and rising foreclosures that started in the subprime market have spread to higher-quality loans that make up the bulk of business at Fannie Mae and its sister company, Freddie Mac. Freddie Mac, too, is expected to post a big loss when it reports its first-quarter results next week.

Fannie Mae posted a net loss, after payment of preferred dividends, of $2.51 billion, or $2.57 per share, for the first quarter, according to a regulatory filing. Before preferred dividends, it posted a loss of $2.19 billion.

The loss was greater than even the most pessimistic forecast and came on the heels of a record $3.6 billion loss in the fourth quarter of 2007. In last year's first quarter, just before the slump in the housing market torpedoed mortgage and credit markets, Fannie posted a profit, after preferred dividend payments, of $826 million, or 85 cents per share.

Fannie Mae's loss and need to raise capital reflect the plight of financial services companies worldwide, which have written off more than $330 billion in soured mortgage securities and raised more than $200 billion to shore up depleted balance sheets.

"During the first quarter we saw heightened volatility in the secondary mortgage market, credit spreads that widened out to 22-year highs and home prices that fell faster than expected," Daniel Mudd, Fannie Mae's chief executive, said in a release.

NEW CAPITAL, SMALLER DIVIDEND

In one measure to preserve cash, Fannie Mae will cut its common stock dividend by 29 percent to 25 cents per share from 35 cents per share, starting with its third-quarter payout. That will free up $390 million a year, it said.

The company also plans to raise $6 billion in new capital through common and preferred stock offerings, it said. To initiate that fund-raising, Fannie Mae said starting Tuesday it will offer two issues totalling $4 billion of common stock and noncumulative mandatory convertible preferred shares.

The company needs to retain capital and raise more funds to fight its way through what has been called the worst housing market since the Great Depression. Fannie Mae and Freddie Mac provide capital to U.S. mortgage markets by buying loans originated by banks and other lenders.

Its regulator said it planned to ease limits on the amount of capital it must maintain and lifted a consent order that had restricted some of its activities after an accounting scandal.

Through February, U.S. home prices had fallen nearly 15 percent from their peak in July 2006, according to the Standard & Poor's/Case Shiller index of 20 metropolitan areas. In February alone, the latest month for which data is available, prices slid 2.6 percent from the previous month and 12.7 percent from a year earlier.