Fannie Reports $58B Loss for 2008

Washington, D.C.-based ""Fannie Mae"":http://www.fanniemae.com/media/pdf/newsreleases/form10k_newsrelease_022609.pdf reported a loss of $58.7 billion, or ($24.04) per diluted share for fiscal year 2008. The GSE's annual deficit is a significant increase from 2007, when the company reported a loss of $2.1 billion, or ($2.63) per diluted share.
During last year's fourth quarter alone, Fannie Mae recorded a loss of $25.2 billion, or ($4.47) per diluted share. The company said its fourth-quarter results were driven primarily by $12.3 billion in net fair value losses, credit-related expenses of $12.0 billion, and securities impairments of $4.6 billion, ""as deterioration in mortgage performance, home prices, and in the credit markets continued to adversely affect [its] financial results."" During the third quarter of 2008, the GSE saw a loss of $29.0 billion, or ($13.00) per diluted share.
Since September 6, 2008, Fannie Mae has been operating under the conservatorship of the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA). Following the company's 2008 financial filings, the director of FHFA requested that the U.S. Department of the Treasury provide Fannie with another $15.2 billion under its existing Senior Preferred Stock Purchase Agreement with the GSEs. The new capital injection is intended to eliminate Fannie's net worth deficit of $15.2 billion as of December 31, 2008. In comparison, the GSE had a positive net worth of $9.4 billion on September 30, 2008.
FHFA has requested that the Treasury provide the funds on or prior to March 31, 2009. The additional capital would help Fannie Mae avoid a trigger of mandatory receivership under the Federal Housing Finance Regulatory Reform Act of 2008.
Despite the need for additional government aid to bring its net value into the safe zone, Fannie reported annual increases in terms of income. For the year, net interest income was $8.8 billion, up 92 percent from $4.6 billion in 2007. Guaranty fee income was $7.6 billion, up 50 percent from $5.1 billion the year before. The company reported that net revenue in 2008 was $17.4 billion, up 56 percent from $11.2 billion in 2007.
However, the company also saw annual increases in arrears. Net fair value losses were $20.1 billion for all of 2008, compared with $4.7 billion in 2007, driven primarily by fourth-quarter losses of $11.4 billion in mark-to-market losses on derivatives due to significant interest rate declines in the period, and $1.9 billion in trading securities losses due to widening credit spreads.
Credit-related expenses for the year, which include credit losses and foreclosed property expenses, were $29.8 billion, up an incredible 495 percent from $5.0 billion in 2007. Charge-offs were $7.0 billion in 2008, an increase of 219 percent from $2.2 billion in 2007. The company's net investment losses for 2008 were $7.2 billion, compared with net investment losses of $867 million in 2007 - a deficit driven by other-than-temporary impairments (OTTI) of available-for-sale securities backed by Alt-A and subprime mortgages during the fourth quarter, as home values continued to decline and estimated loss severities for these loan types increased, Fannie Mae said.
Total nonperforming loans on the GSE's books were $119.2 billion as of December 31, 2008, compared with $63.6 billion at the end of September and $27.2 billion at the end of 2007. According to Fannie, the carrying value of its foreclosed properties was $6.6 billion on December 31, 2008. That figure compares to $7.3 billion on September 30, 2008, and $3.5 billion on December 31, 2007.
The estimated fair value of Fannie Mae's net assets declined from $35.8 billion at the end of 2007 to negative $105.2 billion on December 31, 2008, reflecting the ongoing deterioration in the housing and credit markets and dislocation in the financial markets. The company's stockholders’ deficit, which differs from net worth because of minority interests that third parties own in the GSE's consolidated subsidiaries, was $15.3 billion on December 31, 2008.
Fannie Mae said it expects the market conditions that contributed to its net loss for each quarter of 2008 to continue and possibly worsen in 2009, which is likely to cause further net worth reductions.
Fannie Mae also reported on its homeownership preservation activities for 2008, efforts which will undoubtedly pick up as we move into 2009 considering the GSEs' expanded role in the administration's new housing plan. Fannie made 70,943 HomeSaver Advance loans last year, 33,249 loan modifications, and completed 7,875 repayment plans/forbearances. In 2008, 11,682 preforeclosure sales and deeds-in-lieu of foreclosure were executed.
Single-family REO acquisitions made by Fannie in 2008 were tallied at 94,652, compared with 49,121 in 2007. As of December 31, 2008, the company said its inventory of single-family REO properties was 63,538, compared with 67,519 at the end of the third quarter and 33,729 on December 31, 2007. The decline in REO in the fourth quarter relative to the third quarter was due in part to a suspension of foreclosures on occupied single-family properties by Fannie Mae servicers and retained foreclosure attorneys that began on November 26, 2008. That program has been extended until March 6, 2009.
Fannie said its single-family foreclosure rate, which reflects the number of single-family properties acquired through foreclosure as a percentage of the total number of loans in the company's conventional single-family mortgage credit book of business, was 0.52 percent for the year ended December 31, 2008, compared with 0.28 percent for 2007.