Foreclosure Deals

Fannie Mae: Q1 a Big Loser

It may have been created and chartered by the federal government, but Fannie Mae (the Federal National Mortgage Association) is first and foremost a private company responsible to shareholders for running at a profit. And as with many corporations in this country, the national economy is kicking Fannie around…fast and hard!

One of the nation’s two Government Sponsored Enterprises (GSEs), Fannie reported a first quarter net loss of $2.2 billion — attributable at least in part to an increased number of foreclosures. Although an improvement over the $3.6 billion loss reported for Q4 2007, it pales in comparison to the $961 million profit the GSE reported for the same quarter a year ago.

CNNMoney reported last Tuesday that Fannie’s CEO Daniel Mudd is optimistic overall about the company’s future, but sees more challenges lying ahead for the rest of 2008 and possibly beyond.

“As the initial shock of home price declines dissipate and markets settle down from volatility of the last nine months, we’re seeing tremendous opportunity. As the market recovers, we will be a prime beneficiary,” Mudd said during a conference call with investors Tuesday morning.

As a result of the losses, Fannie is revising its forecast for home price declines from a 5 to 7 percent loss nationally for all of 2008, to a 7 to 9 percent loss for the year, with significant regional differences in the rate of home price declines.

Credit-related expenses for the quarter rose from $3 billion for Q4 2007 to $3.2 billion for Q1 2008 as a result of higher charge-offs, defaults and average loan loss severities, the company release notes.

However, foreclosed property expenses decreased to $170 million for the latest quarter, from $179 million in Q4 2007. Still, Fannie’s largest credit losses were concentrated in the states with the largest home price declines — California, Florida, Michigan and Ohio — four states that have remained among RealtyTrac’s top foreclosure states in the nation for more than a year now. And it recognized $1.1 billion in losses for the quarter for mortgage-related securities backed by Alt-A and subprime loans.

In order to buffer it’s balance sheet to ride out the rest of the economic downturn, Fannie also announced that it will lower its stock dividend to $0.25 a share starting in Q3 2008, and plans to raise $6 billion through public stock offerings.

Fannie’s outlook for 2008 anticipates further weakness in the housing market that will lead to more delinquencies, defaults and foreclosures on mortgage loans and slower growth in U.S. residential mortgage debt for the year.

In the end this translates into continued opportunity for patient home buyers and real estate investors to pick up some good deals on real property for at least the remainder of 2008 and potentially into 2009 as well.