WASHINGTON (MarketWatch) — Mortgage-finance giant Fannie Mae reported a much wider-than-expected first-quarter loss of $2.2 billion, as credit-related expenses took a bite out of its bottom line, and said it’s planning to raise $6 billion in new capital and cut its dividend.
Fannie Mae said fair value losses and credit-related expenses due to adverse market conditions hit its first-quarter earnings. The planned new capital, Fannie Mae said, will enable the company to “maintain a strong, conservative balance sheet, enhance long-term shareholder value and provide stability to the secondary mortgage market.”
As a result of the capital plan, Fannie Mae’s federal regulator said it is reducing the company’s capital surplus requirement to 15% from 20% once Fannie raises the money.
Fannie’s Chief Executive Officer Daniel Mudd said the first quarter saw heightened volatility in the secondary mortgage market, credit spreads that hit 22-year highs and a faster-than-expected drop in home prices.
“Our first-quarter results, although an improvement over the last quarter, reflect these challenging market conditions,” Mudd said. Meanwhile, Fannie Mae’s mortgage credit book of business grew by 3% in the quarter, to $3 trillion.
Last week, Mudd said he doesn’t expect a real recovery in the U.S. housing market before 2010.
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This falls in line with exactly what we have been preaching for the last 6 months. (3 months for this blog) We have already started the “bottoming process”. This is evident by large mortgage-financing companies missing earning as they simply cannot hide the numbers within their books and financial documents anymore. Watch as investors start grabbing fantastic deals from desperate sellers late this year. We hope you are one of them!
