Fannie Mae’s Losses Narrow, but $2.5B More Needed in Aid

Fannie Mae’s Losses Narrow, but $2.5B More Needed in Aid

According to DSNews, the nation’s largest mortgage financier reported a smaller loss during the third quarter of this year than it did in the previous quarter, with the latest figures representing a $17 billion improvement over the company’s financial results just a year earlier. Fannie Mae says, though, that it needs another $2.5 billion from taxpayers to cover its net worth deficit for the July-September reporting period.

Fannie Mae says it lost $1.3 billion in the third quarter of 2010, compared to a net loss of $1.2 billion in the second quarter of the year and a net loss of $18.8 billion during the third quarter of 2009.

The company’s net loss attributable to common stockholders was $3.5 billion last quarter, after the GSE made $2.1 billion in dividend payments to the U.S. Treasury on stock it’s traded to the federal government in exchange for taxpayer support Fannie has received over the past two-plus years.

To eliminate the company’s net worth deficit of $2.4 billion as of September 30, 2010 – more than 85 percent of which is the dividend payment to Treasury – Fannie Mae’s regulator has requested $2.5 billion on the company’s behalf from Treasury. Upon receiving those funds, Fannie Mae will have used $88.6 billion in taxpayer funds to continue its operations since the GSE was placed under government control in September 2008. The company has paid a total of $8.1 billion in dividends to Treasury since that time.

Fannie Mae said in its quarterly earnings release that single-family loans picked up by the company over the past two years are expected to perform better than older loans because lenders have become more prudent in evaluating borrowers for mortgage funding. At the same time, the company says it has set aside enough reserves to cover the “substantial majority” of expected losses on loans written during the housing boom years.

Michael J. Williams, Fannie Mae’s president and CEO, says the loans the GSE has acquired since the beginning of 2009 reflect the company’s “commitment to realistic, common-sense lending standards and sustainable homeownership.” Williams described the credit profiles of these newer assets as “strong” and said he expects these loans “to be profitable over their lifecycle.”

Fannie Mae’s single-family serious delinquency rate (home loans that are 90 or more days past due) has fallen for seven consecutive months. It decreased to 4.56 percent as of September 30, 2010, down from 4.99 percent as of June 30, 2010. The third-quarter delinquency rate marked the first time since 2007 that it’s been lower than the rate reported 12 months earlier.

The GSE acquired 85,349 single-family REO properties through foreclosure in the third quarter of 2010, up nearly 24 percent compared to the 68,838 homes repossessed in the prior quarter.

As of September 30, 2010, Fannie Mae’s inventory of single-family REO properties stood at 166,787. Three months earlier, its REO supply totaled 129,310 units. Fannie says the carrying value of its REOs during the third quarter was $16.4 billion, compared to $13 billion for the previous three-month period.

Fannie’s government-controlled sibling Freddie Mac said last week that its REO inventory stood at 74,897 homes at the end of Q3. Together, the two GSEs hold about a quarter of all bank-owned residential properties in the United States.
Fannie Mae reported that its home retention workouts declined by 14 percent from the second quarter to the third, led primarily by a drop in loan modifications.

During Q3, 106,365 loan modifications were granted by the GSE, including permanent modifications under the Home Affordable Modification Program (HAMP). That compared to 121,693 loan mods reported in the second quarter. Fannie Mae explained that modifications decreased in the third quarter as the company began verifying borrower income prior to completing Fannie Mae modifications for borrowers who were ineligible under HAMP.

The GSE also completed 6,208 repayment plans/forbearances during the third quarter and 20,918 short sales and deeds-in-lieu of foreclosure. In addition, Fannie Mae acquired or guaranteed approximately 541,000 loans that were refinances, which reduced borrowers’ monthly mortgage payments by $141 on average.

During the first nine months of 2010, Fannie Mae purchased or guaranteed an estimated $613 billion in home loans, which includes approximately $195 billion in delinquent loans the company bought back from its single-family mortgage-backed securities (MBS) trusts.