Fannie Mae, the largest provider of U.S. home mortgage funding, on Thursday reported a $14.8 billion quarterly net loss that it said would force it to go to the U.S. Treasury trough a third time for money to stay in business.
The company noted a significant uncertainty of its long-term financial health in reporting its eighth consecutive quarterly loss, which illustrates its struggle to make money in the face of rising defaults and pressure to do more to stabilize the housing market.
Fannie Mae and rival Freddie Mac have become more crucial to the nation's housing system since 2007 as the financial crisis sealed off other sources of loan funding. The government last September seized the congressionally chartered companies to ensure that they would continue supporting housing while taking stiff losses. The government promised to inject up to $400 billion of capital.
Washington-based Fannie Mae said its regulator requested $10.7 billion from the Treasury to erase a deficit in its net worth, bringing total draws under a senior preferred stock purchase program to $45.9 billion.
The $14.8 billion loss compares with a $2.3 billion loss in the same quarter a year ago and a $23.2 billion loss in the first quarter.
The loss came as lingering defaults kept credit-related expenses at a lofty $18.8 billion, compared with $20.9 billion in the first quarter. As the impact of nearly three years of falling home prices has been compounded by rising U.S. joblessness, defaults are increasing on the less risky loans it guarantees, Fannie Mae said.
Worsening conditions are a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices, the company said.
Non-performing loans guaranteed by Fannie Mae rose to $171 billion in June, from $144.9 billion in March and $119.2 billion in December, it said.
Current trends mean Fannie Mae will likely seek additional funding from the Treasury via senior preferred stock purchases, it said. At the same time, it warned that earnings would likely fall short of what's needed to pay dividends, meaning payments to Treasury would effectively be drawn from Treasury.
Fannie Mae and Freddie Mac are linchpins of President Barack Obama's housing rescue program, which aims to refinance or modify existing loans for up to 9 million Americans. But these commitments come at a cost, in part since the companies must pull the troubled loans from mortgage securities and recognize a loss.
As a result of housing mandates, dividend payments, downbeat expectations on housing and the economy there is significant uncertainty as to our long-term financial sustainability, Fannie Mae said in a filing with the Securities and Exchange Commission.
Net interest income rose 15 percent to $3.7 billion in the second quarter from the first quarter, it said. Income from its mortgage guarantee fees was $1.7 billion, compared with $1.8 billion in the first quarter.
Fannie Mae and Freddie Mac are operating under the government conservatorship until lawmakers decide on how to reform the congressionally chartered companies in a way that will both provide strong support for housing and protect taxpayers from future losses. The Obama administration in July said it would propose a resolution in February.
The White House dismissed on Thursday a Washington Post report that U.S. officials were considering a plan to isolate failing assets held by Fannie Mae and Freddie Mac.
We expect significant uncertainty regarding the future of our business, including whether we will continue to exist, to continue until February 2010 and beyond, Fannie Mae said in its regulatory filing.
(Editing by Steve Orlofsky)