Fannie Mae Has $3.55 Billion Fourth-Quarter Loss (Update2)

By James Tyson

Feb. 27 (Bloomberg) -- Fannie Mae, the largest source of money for U.S. home loans, posted a $3.55 billion fourth-quarter loss and said its slump will worsen this year as rising foreclosures send credit costs soaring.

The net loss was triple analyst estimates. Fannie Mae recorded a $3.2 billion drop in the value of derivative contracts and $2.9 billion in credit expenses, according to a filing with the Securities and Exchange Commission.

``We are working through the toughest housing and mortgage markets in a generation,'' Fannie Mae Chief Executive Officer Daniel Mudd said in an accompanying statement.

Fannie Mae increased its estimates for credit losses and said home prices will decline more than its previous forecast, boosting costs for the $2.3 trillion of mortgages that the government-chartered company owns or guarantees. The prediction by Fannie Mae, which accounts for at least one in five home loans, heightened concerns that the housing market may drive the U.S. economy into recession and sent stocks lower.

``I expect it's only the beginning,'' said Joshua Rosner, the managing director of New York-based research firm Graham Fisher & Co.

Fannie Mae today raised its estimates for credit losses this year to a range of 11 basis points to 15 basis points from a range of 8 basis points to 10 basis points. Analysts including Paul Miller at Friedman Billings Ramsey & Co. in Arlington, Virginia, say credit losses will rise to a range of 15 basis points to 25 basis points this year and in 2009.

Loan Losses

The company has lost more than half its market value in the past year as the housing slump deepened. Analysts at Goldman Sachs Group Inc. and Merrill Lynch & Co. cut their recommendations to ``sell'' in the past week on concern that falling home prices will restrict earnings.

Fannie Mae fell 34 cents, or 1.2 percent, to $26.63 as of 9:40 a.m. in New York Stock Exchange composite trading. Freddie Mac, which ranks second to Fannie Mae, dropped 72 cents to $24.49 and is down more than 61 percent in the past year.

Fannie Mae's net loss amounted to $3.80 share, compared with profit of $604 million, or 49 cents, a year earlier, Fannie Mae said. Excluding some items, the per-share loss was $3.79, compared with the $1.20 average estimate of 12 analysts in a Bloomberg survey.

Foreclosures Rise

Fannie Mae and Freddie Mac profit by holding mortgages and mortgage bonds as investments and by charging a fee to guarantee and package loans as securities. They record losses when defaults rise.

Freddie Mac is scheduled to report tomorrow. The McLean, Virginia-based company had losses of $2.02 billion in the third- quarter and $480 million in the year-earlier fourth quarter.

Bank seizures of U.S. homes almost rose 90 percent to 45,327 last month from the same period a year ago, according to RealtyTrac Inc., a seller of foreclosure statistics that has a database of more than 1 million properties. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent. More than 233,000 properties were in some stage of default last month, RealtyTrac said in a statement.

Timely Earnings

Fannie Mae, by reporting timely audited financial results for the first time since 2004, met conditions for the removal of a federal limit on its $724 billion in mortgage investments imposed after a $6.3 billion overstatement of earnings. Its portfolio of home loans and mortgage-backed securities is one of its two main sources of profit.

Still, the need to bolster capital against the worsening housing market will inhibit growth this year, Miller said. Fannie Mae sold its preferred shares in December after its third-quarter loss of $1.4 billion.

``For me to get very comfortable in recommending this stock, I'd like to see something above $15 billion in capital raising,'' Miller said.

The cost of protecting Fannie Mae bonds from default have doubled this year. Credit-default swaps tied to the bonds rose 8 basis points to 87 basis points today, according to broker Phoenix Partners Group in New York.

A basis point on a credit-default swap contract protecting $10 million of debt for five years is equivalent to $1,000 a year. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Fannie Mae and other companies use derivatives to hedge against losses on assets and investments including home loans and mortgage bonds.

To contact the reporter on this story: James Tyson in Washington at at jtyson@bloomberg.net

Peter Schiff vs a Real Estate agent with Caldwell Banker on Fox News stand off about this years housing market. While it is a good time to buy I agree with Peter Schiff. The market is simply overbuilt and new house construction will continue to decline over coming months and years.

Housing is still a bit over priced and will continue to adjust down. The fact that it is a buyers market does not mean that housing in 2008 will rebound. The ripple effect in the market stretches to far. What's your opinion.
Sean McAlister

Watch as some New Yorkers express their opinion on the New York Real Estate Market.
What's your opinion

Real Estate and searching for Real Estate can be difficult for the Real Estate Investor. Real Estate Taxes, Economic Conditions and Market Conditions can play a major role with your Real Estate Investments. Meridian Real Estate is committed to providing you with everything we can that may have an impact on your Real Estate Portfolio

The Stimulus package was just passed by the Senate and the House.
Here is the Full article

By Donna Smith and Richard Cowan

WASHINGTON (Reuters) - The Congress passed a nearly $152 billion plan on Thursday to stave off an election-year recession by sending government rebate checks to millions of Americans and providing business tax incentives to boost spending.

Moving quickly to get the economic package to President George W. Bush, the House of Representatives passed the bill by 380-34, just hours after the Senate cleared the measure on a vote of 81-16. Bush is expected to sign the bill next week.

The legislation will provide one-time rebates of up to $600 for individuals or $1,200 for couples, plus $300 for each child. Low-income people, including retirees on Social Security and disabled veterans who pay no income taxes, would receive checks of $300. The rebates would start to phase out for people with taxable incomes of more than $75,000 for individuals and $150,000 for couples.

At a news conference with congressional leaders, Treasury Secretary Henry Paulson said the rebate checks would go to more than 130 million Americans. "We're going to have the checks out beginning of May and this is largely going to be done by the time summer's over," he added.

Bush praised the final package.

"This plan is robust, broad-based, timely, and it will be effective," he said in a statement. "This bill will help to stimulate consumer spending and accelerate needed business investment."

The final bill was broader than the original House-passed package backed by Bush. The Senate added the elderly and disabled veterans who had been left out of the House bill. To win more Republican support in the closely divided Senate, Democrats had to drop demands for benefits for long-term unemployed workers and other provisions that would have helped low-income people pay heating bills and home builders write off current year losses against previous tax years.

The Senate also added language to help ensure illegal immigrants did not receive rebate checks.
Senate Majority Leader Harry Reid, a Nevada Democrat, said the stimulus package approved by the Senate would "change the economic direction of this country" and added that lawmakers likely would do more this year to stimulate the economy.

The latest economic data suggest the U.S. economy is stalling. Pending sales of previously owned homes fell by 1.5 percent in December and were off a sharp 24 percent from a year ago, the National Association of Realtors said on Thursday.

At the same time the Labor Department said the number of workers drawing jobless benefits has hit a 2 1/4-year high and major retailers reported a slowdown in consumer spending.

Lawmakers hope the rebate checks and incentives for business investments will send Americans on a shopping spree that will help jump start the economy.

The bill also provides for higher loan limits for the Federal Housing Administration insurance program and mortgage financing giants Fannie Mae and Freddie Mac to help lift the sagging housing market.

But even as Congress acted on the bill, some lawmakers were discussing a possible second package to help the economy.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said Congress would move more stimulus legislation "If the economy continues to go south; if there are significant increases in foreclosures and bankruptcies and so forth."

Reid said Republican opposition to expanded unemployment benefits and aid to low-income families for paying winter heating bills would haunt them in the November elections.

"They are following this president right off a cliff," Reid said.
Senate Republican Leader Mitch McConnell of Kentucky said the economic package transcended politics.

"This is not a victory for Republicans or Democrats. This is a victory for the American people," McConnell said.

Reid and other Democratic senators said they would try to move legislation later this year expanding unemployment benefits and helping the housing industry.

(Editing by Eric Walsh)

20/20 Report with some interesting facts about the market, looming recession and trying to sell your house.


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