Fannie Mae Reports $2.2 Billion First-Quarter Loss

Posted under Housing Bubble, Real Estate, Wall Street by Darren Hom

This news clip was released on May 6.

Fannie Mae has reported a loss of more than $2 billion in the first quarter and expects severe weakness in the housing market throughout the rest of the year….

The government has increasingly looked to Fannie Mae to restore stability in the market by buying up mortgages and selling them as securities. Three-quarters of mortgage-backed securities are issued by Fannie Mae and its smaller sibling, Freddie Mac.

To raise capital, the company said it would cut its dividend and offer $4 billion in an immediate share offering. It intends to raise another $2 billion later in the year.

The government is relying on Fannie Mae to reduce the problems we’re facing on the mortgage market. In order to help Fannie Mae do this, investors will have to buy Fannie Mae’s stock.

The company (1) reported a loss of more than $2 billion last quarter, (2) cut dividends, and (3) is planning to package up and sell more loans in a troubled secondary market. In addition, the company is (4) lowering its down payment standard to 3 percent in areas with falling home prices.

(5) Fannie Mae’s stock is down 25 percent this year, and (6) its own chief executive doesn’t think the U.S. housing market will recover until 2010.

If you were considering purchasing its stock, what would you do?