Fannie Mae, the largest provider of funding for U.S. home loans, said on Thursday bad mortgages and a federal foreclosure prevention program left it with a $18.9 billion loss, forcing it to tap the Treasury again to plug a hole in its net worth.
The company also boosted its provision for credit losses in future quarters, and said it expects those impairments to increase this quarter and through 2010.
The assessment is dire for the housing market that has appeared to post a fragile recovery over the past several months with a rebound in home sales and prices in some regions.
The company's expectations of future losses and need for Treasury cash complicate the issue of how to extricate it from taxpayer support, while also trying to prevent a more serious fallout in U.S. housing.
It appears evident that they will remain under conservatorship indefinitely, said Rajiv Setia, a debt strategist at Barclays Capital in New York. There is no way to privatize them in this environment. It could actually be a full decade before something like that happens.
OBAMA PLAN LOSSES
Fannie Mae said much of its energy in the third quarter went to implementing Obama's Making Home Affordable Program.
Under the program, mortgage companies are urged to refinance or modify loans for homeowners facing foreclosure. But the program also means that Fannie Mae and rival Freddie Mac, which guarantee a vast portion of U.S. mortgages, must extract the loans from securities and often recognize a loss.
Serious delinquencies 90 or more days past due, or in foreclosure, increased as the company urged mortgage servicers to seek ways to keep borrowers in their homes. Rising unemployment prevented borrowers from finding alternatives, it said.
Including $883 million in dividends paid on preferred stock already owned by the government, Fannie Mae's loss attributed to common shareholders grew to $19.8 billion. That compares with a loss of $15.2 billion in the second quarter.
Net revenue climbed to $5.9 billion in the third quarter from $5.6 billion in the second quarter, the company said.
Shares of Fannie Mae, which were nearly wiped out as the regulator took control in September 2007, tumbled 7.1 percent after it reported results in extended after-hours trade.
The Federal Housing Finance Agency, Fannie Mae's regulator, has requested $15 billion from the Treasury under a senior preferred stock agreement, which will increase the total government support to $60.9 billion.
We expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement, Fannie Mae said in a statement.
Fannie Mae said continued government support is essential to its access to the debt markets, where it raises money to support loans through its $793 billion portfolio. Currently strong demand for its debt could decline if the Treasury does not extend or replace its credit facility after December 31, and as the Federal Reserve ends its purchase program.
The Washington-based company also said it is waiting for the U.S. Treasury to approve a deal to transfer low income housing tax credits with a carry value of $5.2 billion to unnamed investors.
The Wall Street Journal has reported that Goldman Sachs Group Inc
The FHFA has told the housing finance company it does not object to transferring the tax credits, which are incentives designed to spur investment in low-income housing.
(Additional reporting by Julie Haviv and Chris Sanders; Editing by Andrew Hay)