Fannie Mae Posts Loss, Cuts Dividend, Needs Additional Funds
Fannie Mae cut its dividend earlier today and is planning to raise $6 billion in new funds to stave off the severe U.S. housing market slump, driving its shares and the broader U.S. stock market lower.
The largest provider of U.S. home financing, Fannie Mae also posted a deeper-than-expected quarterly loss, its third in a row, and said it expected more trouble ahead. Its first-quarter net loss was $2.19 billion.
House prices, by some measures already 15 percent below their peak in mid-2006, likely will drop as much as another 9 percent this year and related credit losses will keep rising into 2009.
"I'm not sure if I'm more disappointed about the earnings for this quarter or for the (housing) outlook for next year," said Charles Lieberman, chief investment officer of Advisors Capital Management in Paramus, New Jersey.
"They are clearly still having repercussions from the subprime and market valuation problems." Home price declines and rising foreclosures that started in the subprime market have spread to higher-quality loans that make up the bulk of business at Fannie Mae and its sister company, Freddie Mac.
Freddie Mac, too, is expected to post a big loss when it reports its first-quarter results next week.
Published on May 6, 2008
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