Fannie Mae is not Immune to the Problems in the Housing Market

Fannie Mae is having the same problems as everyone else, just not to the extent. You cannot tell by the article, I wonder how much of the losses come from prime paper. Text in bold is my emphasis. From the WSJ:

Fannie Mae reported a loss of $1.4 billion for the third quarter as falling home prices and rising defaults took a toll on the nation's largest investor in home-mortgage loans.

That compares with a loss of $629 million in the year-earlier quarter.

The Washington, D.C., company avoided some of the riskiest types of mortgage loans made in recent years and has modest holdings of subprime loans. But Chief Executive Daniel Mudd said in a conference call with investors, "We are not immune to the current market conditions."

Falling home prices mean that Fannie and other holders of loans face much bigger losses when they sell foreclosed homes, said Joshua Rosner, an analyst at Graham Fisher & Co., a research firm in New York. He added that the company will suffer more if mortgage insurers prove unable to meet all the claims they will face from Fannie and others in coming years.

For the first nine months, Fannie's net was $1.51 billion, or $1.17 a share, down from $3.46 billion, or $3.16 a share, a year earlier. The company, chartered by Congress in 1938 to help ensure a steady flow of funding for home mortgages, reported results for the first three quarters simultaneously. With Friday's report, Fannie returned to timely reporting of quarterly results.

Reporting had been disrupted by a 2004 accounting scandal that forced Fannie to overhaul its procedures.

Credit expenses, related to overdue or defaulted loans, in the nine months jumped to $2 billion from $400 million a year earlier. That includes provisions for loan losses and the cost of buying delinquent loans from pools of mortgages that back securities held by other investors. Fannie and Freddie Mac hold mortgages as investments and charge fees to guarantee payments on loans that back securities held by other investors. When loans backing those securities go bad, the companies are required to buy them and take a hit for the decline in value.

Fannie also had losses on its holdings of $76.2 billion of AAA-rated securities created by Wall Street firms and backed by subprime and Alt-A loans, a category between prime and subprime. The company recorded $400 million of losses on the portion of those securities held in its "trading" account and unrealized losses of $900 million on the rest of the subprime and Alt-A holdings, classified as "available for sale." The company said it hasn't written down those "available for sale" because it expects to hold them until the value recovers or the securities mature.

Fannie's expenses for foreclosed property tripled to $269 million in the nine months from $89 million a year earlier. Fannie and Freddie are regaining market share as investors flee from mortgages. Fannie provided guarantees on 41% of the U.S. mortgage securities issued in the third quarter, up from 24% a year earlier.