Nineteen BILLION dollars – that’s how much government sponsored entity Fannie Mae lost in the third quarter of 2009, according to the mortgage lender’s 10-Q filing with the SEC on Thursday.
That marks a ninth consecutive quarterly loss for the lender – which it accompanied with a request for a fresh $15bn bailout from the US Treasury.
Fannie Mae’s net worth has (yet again) fallen below zero, forcing it to go hand-outstretched for the fourth time to the Treasury, with which it maintains a $200bn line of credit. If the lender’s net worth were to stay below zero for more than 60 days, it would be forced into receivership.
And as Reuters pointed out:
Fannie Mae, which posted $101.6 billion in losses over the previous eight quarters, has already taken $44.9 billion in federal aid since April.
Gobsmacking.
Here are details from the filing, emphasis FT Alphaville’s:
We recorded a net loss of $18.9 billion for the third quarter of 2009. Including $883 million in dividends on the senior preferred stock, the net loss attributable to common stockholders was $19.8 billion, or $3.47 per diluted share. Our net loss was primarily driven by significant credit-related expenses, which totaled $22.0 billion in the third quarter, reflecting the continued build in our combined loss reserves and increasing numbers of credit-impaired loans acquired from MBS trusts for loan modifications, and $1.5 billion in fair value losses due primarily to losses on derivatives resulting from a decrease in swap rates, the time decay of our purchased options and losses on mortgage commitments. The impact of these items more than offset our net revenues of $5.9 billion generated primarily from net interest income and guaranty fee income.
On “mortgage credit risk”:
We expect increases in borrower delinquencies and defaults on mortgage loans that we own or that back our guaranteed Fannie Mae MBS to continue to materially adversely affect our business, results of operations, financial condition, liquidity and net worth.
Conditions in the housing and financial markets worsened dramatically during 2008 and have remained stressed in 2009, contributing to a deterioration in the credit performance of our book of business, including higher serious delinquency rates, default rates and average loan loss severity on the mortgage loans we hold or that back our guaranteed Fannie Mae MBS, as well as a substantial increase in our inventory of foreclosed properties. Increases in delinquencies, default rates and loss severity cause us to experience higher credit-related expenses.
And on their investments:
We experienced significant fair value losses and other-than-temporary impairment write-downs relating to our investment securities in 2008 and recorded significant other-than-temporary write-downs of some of our available-for-sale securities in the first nine months of 2009. A substantial portion of these fair value losses and write-downs related to our investments in private-label mortgage-related securities backed by Alt-A and subprime mortgage loans and CMBS due to the decline in home prices and the economic recession. We continue to expect to experience additional other-than-temporary impairment write-downs of our investments in private-label mortgage-related securities, including those that continue to be AAA-rated.
And because $22bn in credit-related expenses just wasn’t enough:
The credit losses we experience in future periods are likely to be larger, and perhaps substantially larger, than our current combined loss reserves as a result of the weak housing and mortgage markets and high unemployment and will adversely affect our business, results of operations, financial condition, liquidity and net worth.
In accordance with GAAP, our combined loss reserves, as reflected on our condensed consolidated balance sheets, do not reflect our estimate of the future credit losses inherent in our existing guaranty book of business. Rather, they reflect only the probable losses that we believe we have already incurred as of the balance sheet date. Accordingly, although we believe that our credit losses will increase in the future due to the weak housing and mortgage markets, the costs of our activities under various programs designed to keep borrowers in homes, high unemployment and other negative trends, we are not permitted under GAAP to reflect these future trends in our loss reserve calculations. Because of these negative trends, there is significant uncertainty regarding the full extent of our future credit losses. The credit losses we experience in future periods will adversely affect our business, results of operations, financial condition, liquidity and net worth.
And on net-worth(less-ness):
When Treasury provides the additional $15.0 billion FHFA has already requested on our behalf, the aggregate liquidation preference on the senior preferred stock will be $60.9 billion, and will require an annualized dividend of $6.1 billion. This dividend obligation exceeds our reported annual net income for five of the past seven years and will contribute to increasingly negative cash flows in future periods if we continue to pay the dividends in cash. Further funds from Treasury under the senior preferred stock purchase agreement may substantially increase the liquidation preference of and the dividends we owe on the senior preferred stock and, therefore, we may need additional funds from Treasury in order to meet our dividend obligation. If the total liquidation preference of the senior preferred stock exceeds $81 billion in the future, the annual dividends payable on the senior preferred stock would be greater than the annual net income we have reported for each of the last seven years. These substantial dividend obligations and potentially substantial quarterly commitment fees, coupled with our effective inability to pay down draws under the senior preferred stock purchase agreement, will continue to have an adverse impact on our results of operations, financial condition, liquidity and net worth, both in the short and long term.
Fannie Mae’s shares had fallen more than 7 per cent after-hours in New York, hovering at around $1.04. The stock closed at $1.12 in regular trade.
Related links:
Fannie and Freddie’s uncertain future – FT Alphaville
Fannie Mae still bleeding money – FT Alphaville
Freddie, Fannie doing just fine, thank you very much – FT Alphaville