UBS analyst cuts estimates on Fannie Mae

UBS analyst Eric Wasserstrom said continued deterioration in credit quality will lead to Fannie Mae posting a loss of $3.75 per share in 2008. He previously forecast a loss of 25 cents per share for the year.

Wasserstrom reduced his 2009 earnings estimate to $1.70 per share from $1.80 per share because of credit weakness as well.

Mortgage companies have incurred mounting losses since the middle of 2007 due to a spike in defaults. Analysts widely estimate credit losses will continue to rise into 2009, further reducing earnings of financial services firms with large mortgage portfolios, and in some cases leading to outright losses for the year.

Wasserstrom indicated that Fannie Mae's long-term opportunities are strong because as the mortgage market normalizes, the company should be able to take advantage of better pricing and growth opportunities. Wasserstrom expects Fannie Mae to earn $4.50 per share in 2010.

Shares of Fannie Mae fell $1, or 4 percent, to $24 in late-morning trading Friday as broad markets and the financial services sector fell.