The Problems Contiue for Fannie Mae

The problems are continuing for the large mortgage lenders. Text in bold is my empahsis. From the WSJ:

Fannie Mae shares dropped 10% Thursday as investors reacted to gloomy comments on the housing outlook and an article highlighting a change in the way the company reports credit losses.

At an investment conference in New York, Wells Fargo & Co.'s chief executive, John Stumpf, predicted more pain for mortgage lenders in the year ahead as falling home prices cut the value of collateral. "We have not seen a nationwide decline in housing like this since the Great Depression," he said.

Meanwhile, Fortune magazine's Web site reported a change in the method Fannie uses to report credit losses. Fannie reported last week that its credit losses in the year's first nine months equaled 0.04% of the company's $2.8 trillion of mortgages and related securities owned or guaranteed, up from 0.018% a year earlier. That was in line with the company's forecast. (Realize that this is still a very large number.)

But the company changed its method of presenting the figure, excluding unrealized losses on certain loans that were marked down to reflect current market conditions. Including those unrealized losses, the rate for this year's first nine months was 0.075%, up from 0.023% a year before.

The changed method was explained in the company's quarterly Securities and Exchange Commission filing and investor materials and discussed in a conference call, but it wasn't explained in the news release.

Fannie officials said the change was made to separate realized losses from ones that haven't been realized and depend on fluctuating market values for loans. A report from J P Morgan Chase & Co. analyst George Sacco said the new method is similar to that used by rival Freddie Mac. Fannie officials noted that both the realized and unrealized losses were reflected in the earnings reported last week.