Yesterday, Fannie Mae reported a $25.2 billion loss for the fourth quarter of 2008 and a $58.7 billion for the full year, resulting in a $15.2 billion net worth deficit as of December 31, 2008. The results mark the sixth straight quarter of losses, though narrower than $29 billion loss reported in the third quarter of 2008. Fannie Mae stated that fourth quarter results were driven primarily by $12.3 billion in net fair value losses, credit-related expenses of $12.0 billion, and securities impairments of $4.6 billion, as deterioration in mortgage performance, home prices, and in the credit markets continued to adversely affect our financial results.
As Fannie Mae preliminarily announced last month, on Wednesday the Director of the Federal Housing Finance Agency, who serves as conservator for Fannie Mae, submitted a request to Treasury on Fannie Mae's behalf for $15.2 billion in funding under the terms of last year's Senior Preferred Stock Purchase Agreement "in order to eliminate our net worth deficit as of December 31, 2008." 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. This is the first time Fannie Mae has drawn down on Treasury's commitment.
In its Form 10-Q filing with the SEC on Thursday, Fannie Mae provided its outlook for 2009, as briefly summarized below:
- Overall Market Conditions - Continued crisis in the U.S. and global financial markets, including increased unemployment, home price declines and rising default and severity rates, and an increase in foreclosures and single-family delinquency rates, all of which will continue to affect Fannie Mae's financial results throughout 2009.
- Home Price Declines - Home prices will decline another 7% to 12% on a national basis in 2009, following an approximate 9% decline in 2008.
- Credit Losses and Loss Reserves - Fannie Mae's credit loss ratio will exceed 2008, along with significant continued increases in the company's combined loss reserves.
- Liquidity - Continued pressure on Fannie's ability to access the debt markets at attractive rates, particularly Fannie's ability to issue long-term debt at attractive rates, which increases Fannie's borrowing costs as well as “roll over” risk and limits the ability to grow and manage Fannie's market and liquidity risk effectively.
- Uncertainty Regarding our Future Status and Profitability - The expectation that Fannie will "[e]xperience adverse financial effects because of our strategy of concentrating our efforts on keeping people in their homes and preventing foreclosures, including our efforts under the Homeowner Affordability and Stability Plan, while remaining active in the secondary mortgage market."