Fannie Mae posts loss, seeks more government funds

WASHINGTON (Reuters) - Fannie Mae, the largest provider of residential mortgage funds, on Friday reported a loss of $16.3 billion for the fourth quarter of last year and said it requested $15.3 billion from the Treasury to keep its net worth in positive territory.

The government-controlled company said it would need additional taxpayer funds in the future to continue operations.

Fannie Mae said the quarterly loss came as rising defaults kept credit-related expenses elevated at $11.9 billion, though expenses were almost half the third quarter level of $22.0 billion.

Fannie Mae’s quarterly loss was $15.2 billion before a $1.2 billion dividend payment on senior preferred stock owned by the Treasury, putting total 2009 losses at $74.4 billion, compared with $59.8 billion in 2008.

With the $15.3 billion request for funds from Treasury, Fannie has now asked for $76.2 billion from the Treasury’s unlimited credit line.

Fannie Mae said the losses were likely to be ongoing.

“We expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury,” the company said.

Jim Vogel, head of fixed income research at FTN Financial Capital Markets in Memphis, Tennessee, said the capital draw from Treasury was in line with expectations but offered little comfort going forward.

“Fannie Mae’s financial performance indicates that as much as we would like the excesses of the last decade to be behind us, the clean-up period is going to extend for at least the next several years,” he said.

Fannie Mae has been struggling to contain losses sustained from its massive exposure to the U.S. housing market that remains in the throes of the worst downturn since the 1930s.

Fearing that losses would harm Fannie Mae’s ability to support housing, the government placed the company into conservatorship in September 2008 and recently pledged unlimited financial backing.

Serious delinquencies on single-family mortgages guaranteed by Fannie Mae rose to 5.38 percent as of December 31, compared with 4.72 percent on September 30, and compared with 2.42 percent at the end of 2008.


Fannie Mae’s chief executive, Michael Williams, said the company’s “overriding” objective is to keep people in their homes.

“We continue to work closely with our industry partners and the government to reach every borrower we can and to address rising foreclosure,” Williams said in a statement.

Fannie Mae also said it recognized a $5.0 billion loss from the write-down of its investments in low-income tax credit partnerships.

As part of its credit line with the government, Fannie Mae has agreed to pay annual dividends back to Uncle Sam. The cost of the dividends alone exceeds what Fannie has earned in most years, and will likely complicate efforts by Congress to overhaul the business model undone by the financial crisis.

Freddie Mac, the other, smaller government-controlled mortgage finance company, is in a similar position and said earlier this week it lost $7.8 billion in the fourth quarter and would need to tap the Treasury credit line in the first quarter of this year.

The Obama administration has yet to lay out a long-term vision for both Fannie and Freddie.

House Financial Services Committee Chairman Barney Frank has said he would like to see Fannie and Freddie “abolished” in their current form, but he has not made it clear what that means. He has scheduled a hearing on the future of housing finance for March 23.

Federal Reserve Board Chairman Ben Bernanke this week said the U.S. central bank would not support a return to the pre-conservatorship quasi-governmental status of Fannie and Freddie. He said a more stable long-term solution could include either privatization with government guarantees or a public utility model.

Additional reporting by Lynn Adler, Editing by Leslie Adler