Bernanke speaks…and Fannie Mae holds its hand out.
No sooner had the Fed chairman finished a speech at Colombia Business School, saying the Federal housing agencies needed to raise cash so as to help stricken mortgage holders, than Fannie Mae announced plans to raise $6bn in new shares and preferred stock.
That is in the middle of a very wide band of analysts’ expectations, which had Fannie Mae raising anything between $3bn and $10bn.
The news came with Q1 numbers, which were generally as expected - i.e. gruesome.
The first quarter dividend is being cut to 25 cents, helping to raise almost $400m on top of the $6bn cash call.
Responding to governmental calls to sharpen up its efforts to help the real victims of subprime, Fannie Mae promises a series of new initiatives called “Keys to Recovery,” including:
1) A new refinancing option for up-to-date but ‘underwater’ borrowers with loans owned by Fannie Mae that will allow for refinancing up to 120 per cent of a property’s current value;
2) A renewal and expansion of the company’s partnership with the state Housing Finance Agencies to provide $10bn in financing for qualified, first-time buyers.
3) In partnership with Self-Help Credit Union, a new initiative that allows families in hard-hit communities to reside in foreclosed properties on a rent-to-own basis.
4) New jumbo-conforming loans will be priced flat to conforming for portfolio asset acquisition through the end of the year.
But, beyond the politics, the real eye-catching in Tuesday’s release is the effect of Fannie Mae implementing fair value accounting for its derivatives holdings. This has caused net assets to shrink from $35.8bn at the end of 2007 to $12.2bn at March 31:
The widening of mortgage-to-debt spreads caused a decline of roughly $8.4bn. In addition, the fair value of guaranty obligations increased by approximately $16bn.
The outlook:
Fannie Mae expects severe weakness in the housing market to continue in 2008. The company believes this housing weakness will lead to increased delinquencies, defaults and foreclosures on mortgage loans, and slower growth in US residential mortgage debt outstanding in 2008.
