Fannie Mae Loses $2.3 billion in Q2

US mortgage giant posts big second quarter loss on higher credit losses.

Matthew Warren 8 August, 2008 | 4:47PM
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A quick read through Fannie Mae's second-quarter results Friday didn't reveal anything particularly surprising. The American mortgage titan lost $2.3 billion in the quarter versus $2.2 billion in the first quarter, driven by $5.3 billion in credit-related expenses, up from $3.2 billion last quarter. After raising $7.4 billion in new capital in May, Fannie Mae had $47 billion of core capital at the end of the second quarter, $9.4 billion above the regulator-directed 15% surplus capital requirement for the firm.

With losses chewing through precious capital, the firm is taking action to stanch the bleeding. It is reducing its stock dividend to $0.05 per share from $0.35, cutt

ing operating costs by 10% by the end of next year, increasing guarantee fees (including a 25-basis-point adverse market delivery charge), eliminating new Alt-A business, and exhibiting caution regarding portfolio growth. The firm has raised its credit loss guidance for this year to 23-26 basis points from 13-17 basis points previously. Fannie also indicated that credit loss trends accelerated to the downside in July, the first month of the third quarter. We continue to advise extreme caution for anyone considering speculating in Fannie Mae shares.

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Matthew Warren  Matthew Warren is an associate director with Morningstar.

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