Fannie Mae taps Treasury for further $19bn

By Saskia Scholtes in New York

Published: May 8 2009 15:04 | Last updated: May 8 2009 15:04

Fannie Mae said on Friday it would draw a further $19bn of assistance from the US Treasury after a seventh consecutive quarterly loss – $23.2bn in the first quarter – drove its net worth below zero.

Fannie said it expected more red ink in future quarters, which would require further help from the government. The company added that its role as programme administrator for the government’s housing market rescue would likely have an adverse effect on the company’s financial condition.
The first-quarter net loss of $4.09 a share forced it to request its second instalment from a $200bn federal lifeline established for Fannie and rival Freddie Mac, the mortgage financier said in a filing.

Fannie’s loss resulted from $20.9bn of credit costs, $1.5bn of losses related to the plunging value of its portfolio of guaranteed and privately held mortgages, and $5.7bn of securities impairments. The losses combined to drive the mortgage financier to a net worth deficit of $18.9bn.

The group sold $15.2bn of preferred stock to the US Treasury in March to cure its fourth quarter net worth deficit.

The Treasury safety net was established when the companies were put under government supervision last September. The government made an initial $1bn purchase of preferred stock and related warrants in the companies and said it would buy up to $100bn of preferred shares in each company to keep their net worth positive.

Fannie and Freddie, which own or guarantee almost half of US residential mortgage debt, have become central to President Barack Obama’s plan to help avoid foreclosures. In February, the Treasury doubled its emergency capital commitment for each company to $200bn.

Freddie has thus far tapped the Treasury lifeline twice for a combined $45.6bn in assistance. The mortgage financier has not yet reported its first quarter results and may soon require further assistance.
Copyright The Financial Times Limited 2009

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