Fannie Mae Posts Loss, Plans to Sell Tax Credits

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Fannie Mae Posts Loss, Plans to Sell Tax Credits


Nov. 5 (Bloomberg) -- Fannie Mae, the mortgage-finance company under federal control, said it will seek $15 billion in U.S. Treasury aid and sell $2.6 billion in unused tax credits after posting its ninth straight quarterly loss.

A third-quarter net loss of $18.9 billion pushed Fannie Mae to request its fourth draw on a $200 billion government lifeline, according to a Securities and Exchange Commission filing today. The Washington-based company said it reached an agreement to sell the low-income housing tax credits to avoid impairments when the credits expire.

The Treasury, which has yet to approve the sale, is considering whether to let Goldman Sachs Group Inc. buy some of the credits. Goldman Sachs, the most profitable securities firm in Wall Street history, could use the deal to lower its tax bill. Fannie Mae has accumulated about $5.2 billion in the credits, and hasn’t been able to recognize the majority of the tax benefits because it hasn’t been profitable since 2007.

Fannie Mae, which owns or guarantees more than 20 percent of the $12 trillion U.S. home-loan market, has been hobbled by a three-year housing slump that has wiped 28 percent off home values nationwide and led to record foreclosures. Fannie Mae Chief Executive Officer Michael Williams said Sept. 9 that the housing market still has a “long road ahead” to recovery and investors and borrowers should remain cautious.

“We are dependent on the continued support of Treasury in order to continue operating our business,” Fannie Mae said in the filing today, citing “trends in the housing and financial markets.”

Defaults, Foreclosure

A record 2.6 million defaults, scheduled foreclosure auctions or bank repossessions occurred in the first nine months of this year, 22.1 percent more than a year earlier, as unemployment rates climbed and temporary programs delaying foreclosure expired, according to Irvine, California-based data company RealtyTrac Inc.

Fannie Mae, which posted $101.6 billion in losses over the previous eight quarters, has already taken $44.9 billion in federal aid since April. Its shares, which peaked at $87.81 in December 2000, closed at $1.12 today in New York Stock Exchange composite trading.

Fannie Mae and smaller rival Freddie Mac were chartered by the government primarily to lower the cost of homeownership by buying mortgages from lenders, freeing up cash at banks to make more loans. The companies make money by financing mortgage-asset purchases with lower-cost debt and by charging fees to guarantee securities they create out of home loans from lenders.

Net Worth

The Federal Housing Finance Agency put Fannie Mae and Freddie Mac under its control in September 2008, and forced out management after examiners said the two may be at risk of failing amid the worst housing slump since the Great Depression.

McLean, Virginia-based Freddie Mac, which posted a second- quarter profit partly because of one-time accounting adjustments and mark-to-market gains, has tapped $50.7 billion in aid since November 2008.

Fannie Mae’s net worth, or the difference between assets and liabilities, was negative $15 billion as of Sept. 30, compared with negative $10.6 billion on June 30 and negative $18.9 billion on March 31, according to company statements.

There are some glimmers of hope as federal homebuyer tax credits and financing programs have sparked demand for homes and led the housing industry to contribute to U.S. economic growth for the first time in four years last quarter. Sales of existing homes surged a record 9.4 percent in September, to a 5.57 million annual rate, more than forecast and the highest in more than two years, according to National Association of Realtors data.

Loss Reserves

The mortgage market is still dependent on government- affiliated programs, with private banks providing just 10 percent of loan liquidity, down from about 60 percent in 2006, Williams said in September. Fannie Mae and Freddie Mac are responsible for about 70 percent of all new mortgages this year, while the Federal Housing Administration accounts for about 20 percent, Williams said.

The Senate yesterday voted to extend the $8,000 first-time homebuyer tax credit through April 30, and expand the program to include people with higher incomes and some who already own homes. The House approved the measure today and is sending it to President Barack Obama to sign into law.

For the third quarter, Fannie Mae increased reserves for future credit losses to $65.9 billion last quarter from $55.1 billion in the previous quarter.

The amount of nonperforming loans that Fannie Mae guarantees for other investors rose to $163.9 billion from $144.2 billion in the second quarter, according to the filing. Fannie Mae also owned $34.2 billion in non-performing loans as of Sept. 30, up from $26.3 billion in the second quarter.

The fair value of Fannie Mae’s assets was negative $90.4 billion last quarter, compared with $102 billion at the end of June.