Stung by Derivatives, Fannie Posts Large Loss, Needs Almost $8B From Treasury

Mortgage & Real Estate

Fannie Mae reported a net operating loss of $5.1 billion for the third quarter, compared to a $1.3 billion loss a year ago, as fair value changes on derivatives and interest rate swaps swamped revenues.

After the market closed Tuesday, the GSE said it will borrow $7.8 billion from the U.S Treasury to cover the operating loss and $2.5 billion of dividends payments it owes the Treasury.

“Our results in the third quarter were significantly affected by continued weakness in the housing market and the overall economy,” said Fannie president and chief executive Michael Williams.   

Fannie took in net revenues of $5.5 billion in 3Q, compared to $5.1 billion during the same period last year.

However, the secondary market investor suffered a $4.5 billion hit on the “fair value” of its derivatives, blaming it on a “significant decline” in interest rates during the quarter. In the comparable period last year the GSE incurred just $525 million of fair value losses. 

Meanwhile, Fannie is selling foreclosed properties faster than it is acquiring REO from servicers.

The mortgage giant acquired nearly 45,000 REO properties and sold 58,300 during the period. As of Sept. 30, Fannie held 122,600 REO properties, compared to 162,500 at yearend 2010.

Fannie reduced its credit-related losses and foreclosure expenses to $4.9 billion in the third quarter, compared to $6.1 billion in the prior quarter and $5.6 billion a year ago.

Nevertheless, the single-family business reported a $3.7 billion loss due to the credit-related losses mostly on legacy loans purchased prior to 2009.  New loans originated after 2009 account for 49% of Fannie’s entire $2.7 trillion guaranty book of business.

The company purchased $116.5 billion single-family loans from its seller/servicers in the third quarter, compared to $93.3 billion in 2Q.  

It has been under government control since Sept. 2008.

Daily Briefing | Tuesday, November 8, 2011

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