• Fannie Mae Reports $14.8 Billion Second Quarter Loss and Need for Additional $10.7 Billion Capital Injection from Treasury
  • August 18, 2009
  • Law Firm: Alston & Bird LLP - Atlanta Office
  • On Thursday, Fannie Mae reported a $14.8 billion loss for the second quarter of 2009, its eighth straight quarterly loss, resulting in a net worth deficit of $10.6 billion (after taking into account unrealized gains on available-for-sale securities during the second quarter and an adjustments to deferred tax assets).  As a result, the Director of the Federal Housing Finance Agency, who serves as conservator for Fannie Mae, has submitted a request to Treasury on Fannie Mae's behalf for $10.7 billion in funding under the terms of last year's Senior Preferred Stock Purchase Agreement "in order to eliminate our net worth deficit."  Treasury's agreement was established when Fannie Mae was placed into conservatorship in September 2008, and Treasury's preferred stock commitments were increased as part of the Homeowner Affordability and Stability Plan from $100 billion to $200 billion.  In March, Fannie Mae drew down $15.2 billion on Treasury's commitment. In May it drew down $19.0 billion.

    Fannie Mae stated that the first quarter loss was driven "by $18.8 billion of credit-related expenses, reflecting the ongoing impact of adverse conditions in the housing market, as well as the economic recession and rising unemployment." Although the second quarter loss is down significantly from the $23.2 billion loss in the first quarter of 2009 and the $25.2 billion loss in the fourth quarter of 2008, Fannie Mae continues to predict that "[d]ue to current trends in the housing and financial markets, we expect to have a net worth deficit in future periods."

    In its Form 10-Q filing with the SEC, Fannie Mae continued the pessimistic tone of its first quarter filings, stating that the “U.S. residential mortgage market continued to deteriorate in the second quarter of 2009, which adversely affected our financial condition and results of operations. While housing activity, as measured by sales, stabilized in the second quarter of 2009, the number of mortgage delinquencies and mortgage foreclosures continued to increase."  Fannie Mae cautioned that they "anticipate that adverse market dynamics and certain of our activities undertaken, pursuant to our mission, to stabilize and support the housing and mortgage markets will continue to negatively affect our financial condition and performance through the remainder of 2009 and into 2010. "  In addition, Fannie Mae stated that "future activities that our regulators, other U.S. government agencies or Congress may request or require us to take to support the mortgage market and help borrowers may contribute to further deterioration in our results of operations and financial condition."