(Reuters) - Fannie Mae FNM.P, once a mortgage giant, could post losses totaling $20 billion to $40 billion in the next four quarters, as elevated credit costs continue to hurt the company’s capital position, an analyst at FBR Capital Markets said.
Rising credit costs and the amount of losses will determine how much capital the U.S. Treasury would have to inject into Fannie Mae, analyst Paul Miller said in a note to clients.
Fannie Mae said on Monday it is losing money so fast it may have to tap government cash to avoid shutting down after the largest source of funding for U.S. homes posted a record $29 billion quarterly loss.
Credit expenses for Fannie Mae also soared to $9.2 billion in the quarter due to deteriorating mortgage credit conditions and as home prices declined. Further losses this quarter may wipe out shareholder equity, which fell to $9.3 billion in the third quarter from $44 billion at the end of 2007.
However, significant loan modification initiatives by the company should partially reduce losses in the longer term, but the success of the modification efforts remain to be seen, analyst Miller said.
He maintained his “underperform” rating and price target of 50 cents on the company’s stock.
“We believe there is little value left for the common shareholders given the conservatorship status and the significant dilution of common shareholders to a 20.1 percent ownership that came with the government intervention,” Miller said.
The U.S. seized Fannie Mae FNM.P and its smaller rival Freddie Mac FRE.P in early September, saying the companies were so battered by the mortgage meltdown that they risked being unable to fulfill their mission of aiding housing.
Amid the housing crisis and the turmoil in the mortgage markets, conservatorship will last beyond 2009, and the company’s common shares will continue to trade with little value, he said.
Miller expects Fannie Mae to post a loss of $20.80 a share for 2008, almost double of what he estimated earlier, and also widened his 2009 loss estimate more than three-fold to $8.15 a share.
Reporting by Anurag Kotoky in Bangalore; Editing by Pratish Narayanan