Fannie Mae asks for $7.8bn as losses widen
Fannie Mae, the US-controlled mortgage financier, will request an additional $7.8bn from taxpayers after soured derivatives bets caused the company to record a $5.1bn quarterly loss.
The company’s loss nearly quadrupled from last year’s third-quarter shortfall of $1.3bn, despite fewer homeowners falling behind on their obligations and less money set aside to cover future loan losses.
Fannie’s flood of red ink is largely due to bad bets on interest rates, which declined to historic lows during the three-month period ending in September. Derivatives and securities trading resulted in a $4.5bn loss for the quarter, versus a $500m gain in the same period last year.
The company has recorded a quarterly operating profit only once in the past four years. Even then, it recorded a net loss due to required dividend payments to the US Treasury following its bail-out in 2008.
The home loan concern, which together with its sister company Freddie Mac owns or guarantees nearly half of all outstanding US single-family mortgage debt, has now requested more than $111bn from the US Treasury to stay afloat. Freddie has needed more than $72bn from taxpayers to survive.
Both companies continue to suffer from poor lending decisions made during the housing bubble and a deteriorating US housing market that makes it difficult to turn a profit. Freddie reported a $4.4bn third-quarter loss last week, leading it to request another $6bn from the Treasury to survive.
Their continued weakness underscores the wretched state of the US property market. Sales and construction are near record lows, while delinquencies across the industry are rising. Home seizures, both completed and expected, continue to damp home prices, which are not expected to rise until 2014. Homeowner equity is near its lowest recorded level.
