Skip to comments.Fannie Mae Loses $2.4 Billion in Q4 ’11 – Asks Treasury for $4.6 Billion MORE
Posted on 02/29/2012 7:39:19 AM PST by whitedog57
Fannie Mae reported that they lost $2.4 Billion in Q4 11 and requested $4.6 Billion from Treasury. Here is their 10=K (annual report).
The loss includes $5.5 billion in credit-related expenses, mostly from bubble-era loans such as 2007 and 2006 vintages.
Face it, continuing downward trending in home prices (see Case-Shiller and FNC 20 City Indices) and a civilian employment to population ratio stuck at 58.5% isnt helping matters. Fannie Mae has exposure to the sand states of Arizona, California, Florida, Nevada as well as the vacation mecca of Idaho. Upstate Michigan is a vacation destination for some, but that is largely the collapse of Detroit.
Even if the housing market stabilizes and unemployment rates decline (not the headline unemployment rate, but the aggregate nonemployment rate of 41.5%), but are likely to see further losses from two sources: 1) hedging losses and 2) losses due to HARP 2.0.
It will be difficult to adequately hedge their portfolio if interest rates start to rise. While Fannie (and Freddie) could experience volatility in gains and losses from hedging, my concern is the potential losses from a surprise rise in interest rates.
Add to that the potential losses from HARP 2.0, which is gaining steam. While some argue that Fannie Mae will be helped by HARP 2.0, I disagree. If successful, it will cost Fannie Mae billion of dollars of lost interest revenue (and MBS investors as well) AND lock Fannie Mae in to historically low mortgage rates that are likely to increase over time.
In summary, credit losses are likely to decline IF housing prices start to rise in most of the country and employment improves. But hedging losses are still as threat as is HARP 2.0. And whatever new grand scheme for helping homeowners comes out of Congress and the Administration.
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