FNM Reports $1.2 Bln Net Loss in Q2

Fannie Mae (FNMA/OTC) reported a net loss of $1.2 billion in the second quarter of 2010, compared to a net loss of $11.5 billion in the first quarter of the year. Net revenue was $4.5 billion in the second quarter of 2010, up 49 percent from $3.0 billion in the first quarter of 2010, due primarily to an increase in net interest income. Credit-related expenses, which are the total provision for credit losses plus foreclosed property expense, were $4.9 billion, down from $11.9 billion in the first quarter of 2010. The company expects its financial results will continue to be negatively affected by losses primarily on a subset of loans it acquired between 2005 and 2008.

The company expects that its credit-related expenses will remain high in 2010. However, the company expects that, if current trends continue, its credit-related expenses will be lower in 2010 than in 2009. Net fair value gains were $303 million in the second quarter, compared to losses of $1.7 billion in the first quarter of 2010, due primarily to lower fair value losses on the company's derivatives, which were partially offset by lower fair value gains on its trading securities. During the quarter, loans from Fannie Mae's 2009- 2010 book of business continued to perform solidly while credit-related expenses on the overall book of business decreased by more than $7 billion. Beginning in 2008, Fannie Mae raised its underwriting standards and sharply reduced its acquisitions of higher-risk loans to support sustainable homeownership. The impact of these changes is shown in the 2009 and 2010 vintages of Fannie Mae's single-family loans, which have the lowest early serious delinquency rates of any loans the company has acquired in the last 10 years. The company currently anticipates that these loans will be profitable.

Credit Losses: Almost all of the company's realized credit losses in 2009 and 2010 on single-family loans are attributable to single-family loans that it purchased or guaranteed from 2005 through 2008. While these loans will give rise to additional credit losses that it has not yet realized, the company estimates that it has reserved for the substantial majority of these losses... Housing Forecast: The company expects home prices to decline slightly for the balance of 2010 and into 2011 before stabilizing, and that home sales will be basically flat for all of 2010. Residential mortgage debt outstanding is expected to decline for the third year in a row.

Providing Liquidity: During the first half of 2010, the company purchased or guaranteed an estimated $423 billion in loans, which includes approximately $170 billion in delinquent loans the company purchased from its single-family mortgage-backed securities trusts. Fannie Mae remained the largest single issuer of mortgage-related securities in the secondary market during the second quarter, with an estimated market share of new single-family mortgage-related securities of 39.1 percent, compared with 40.7 percent in the first quarter of 2010.

source:briefing