Magazine article Mortgage Banking

Fannie Posts Net Loss of $5.1 Billion in Third Quarter

Magazine article Mortgage Banking

Fannie Posts Net Loss of $5.1 Billion in Third Quarter

Article excerpt

Washington, D.C.-based Fannie Mae ended the third quarter with a net loss of $5.1 billion, requiring another draw from the federal government to make up for a net-worth deficit. The company will request another $7.8 billion from the Treasury under the senior preferred stock program. The total amount requested from the Treasury upon receipt of the new funds will be $112.6 billion. The new request for $7.8 billion will be the largest amount requested since the first quarter of 2011.

Fannie's third-quarter loss of $5.1 billion was considerably worse than the $2.9 billion loss in this year's second quarter. The company said the weaker performance was driven primarily by two factors: "$4.9 billion in credit-related expenses, the substantial majority of which were related to its legacy (pre-2009) book of business; and $4.5 billion in fair-value losses, driven primarily by losses on risk management derivatives due to a significant decline in swap interest rates during the quarter."

During the quarter, the company produced $5.5 billion in net revenue.

"Our results in the third quarter were significantly affected by continued weakness in the housing market and the economy overall. Despite these challenges, we are making solid progress. We are growing a strong new book of business that now accounts for nearly half of our overall single-family guaranty book of business," said Michael Williams, president and chief executive officer of Fannie Mae.

The third-quarter spike in requested money from the Treasury comes in contrast to the pattern of lower draws set in the second through fourth quarters of last year (2010). In last year's third quarter, Fannie Mae needed $2.5 billion from the government versus this year's third-quarter draw request of $7.8 billion. The draw requests picked up dramatically in the first quarter of this year at $8.5 billion.

In the first nine months of this year, Fannie Mae purchased or guaranteed roughly $445 billion in loans, which included approximately $51 billion in delinquent loans from its single-family mortgage-backed securities (MBS) trusts.

The newer book of single-family business--purchased or guaranteed since the beginning of 2009--now represents 49 percent of Fannie's single-family guaranty book of business.

Much higher credit quality is the hallmark of the new book, reflecting a much-reported-on tightening of credit standards. "Conventional single-family loans added to Fannie Mae's book of business since Jan. …

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