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Correction: Fannie Mae Q4 Loss Narrows; Seeks $15.3 Bln. Federal Support

FNM 02262010

Correction: Corrects the loss per share figure for the year-ago quarter.

Government-sponsored home mortgage finance company Fannie Mae (FNM), Friday reported a loss for the fourth quarter that narrowed from last year on lower credit related expenses, impairments and fair value losses. Further, the company said it has applied for additional $15.3 billion aid from the federal government and is dependent on the continued support of Treasury for operation of its business.

The Washington-based company reported a net loss attributable to common shareholders of $16.33 billion or $2.87 per share for the fourth quarter, compared to a loss of $25.25 billion $4.47 per share in the prior year quarter.

Net loss for the fourth quarter included $1.15 billion of dividends on senior preferred stock held by the U.S. Department of Treasury.

The company said that the fourth quarter net loss was driven primarily by credit expenses, which declined sequentially but remained at an elevated level, and recognition of a $5.0 billion loss on the company's low income housing tax credit investments.

The fourth quarter loss left Fannie Mae with a net worth deficit of $15.3 billion as of December 31, 2009, considering unrealized gains on available-for-sale securities during the fourth quarter.

Fannie Mae said the director of Federal Housing Finance Agency or FHFA submitted a request to Treasury on February 25, for an additional $15.3 billion on the company's behalf to eliminate its net worth deficit. FHFA has requested that Treasury provide the funds on or prior to March 31, 2010.

On December 31, 2009, Fannie Mae had received $15.0 billion from Treasury under the senior preferred stock purchase agreement. As a result of this draw, the aggregate liquidation preference of the senior preferred stock increased to $60.9 billion as of December 31, 2009 from $45.9 billion. It is expected to increase to $76.2 billion upon the receipt of funds from Treasury to eliminate the company's fourth-quarter 2009 net worth deficit.

On December 24, 2009, the Treasury amended the senior preferred stock purchase agreement. Under the terms of amended agreement, the cap on Treasury's funding commitment to Fannie Mae will increase as necessary to accommodate any net worth deficits for calendar quarters in 2010 through 2012. For any net worth deficits after December 31, 2012, Treasury's remaining funding commitment will be $124.8 billion, less any positive net worth as of December 31, 2012.

In September 2008, the government promised to buy up to $100 billion in preferred shares in Fannie Mae and Freddie Mac and also created warrants to dilute existing shareholders. The government has pledged more than $1.5 trillion since then to keep the mortgage market working through the two firms.

The firms are currently being used by the Obama Administration to pull through its housing recovery program and restructure mortgages.

In the immediately preceding quarter, Fannie Mae reported a net loss of $19.76 billion or $3.47 per share due to credit related expenses, impairments and fair value losses. Net interest income rose 63% to $3.82 billion from $2.36 billion in the third quarter of fiscal 2008.

Segment wise, the company's Single-Family business recorded a net loss of $9.6 billion for the fourth quarter, due to the reduction in credit-related expenses. For the fourth quarter, Housing and Community Development business posted a net loss of $6.2 billion on partnership investments during the quarter, mainly due to a $5.3 billion of losses on on partnership investments. Capital Markets group recorded net income of $572 million in the fourth quarter.

Net revenues for the quarter increased to $5.8 billion from $5.6 billion in the prior-year quarter.

Net interest income rose to $3.7 billion from $2.7 billion in the corresponding quarter last year. Net fair value losses were $638 million, associated with acquiring credit impaired loans in the fourth quarter, narrower than 12.3 billion in the same quarter last year.

Net other-than-temporary impairments declined to $2.5 billion from $4.6 billion in the same quarter last year. Sequentially, impairments increased, driven by increased loss expectations on its private label securities to more closely align with the observed deterioration of the loans underlying securities.

Credit-related expenses, which are the total provision for credit losses plus foreclosed property expense, were $11.9 billion, compared to $12.0 billion.

Provision for credit losses for the quarter totaled $12.2 billion, compared to $11.03 billion last year. The loan loss provision for the quarter was largely driven by a substantial increase in non-performing single-family loans, higher delinquencies and an increase in the average loss severity.

Total expenses increased to $13.19 billion from $12.82 billion in the corresponding quarter last year. Total interest expense decreased to $5.57 billion from $8.27 billion in the year-earlier quarter.

Total nonperforming loans in guaranty book of business were $216.5 billion, compared to $119.2 billion on December 31, 2008. The carrying value of the company's foreclosed properties was $8.7 billion, compared to $6.6 billion on December 31, 2008.

Combined loss reserves were $64.9 billion on December 31, 2009, up from $24.8 billion on December 31, 2008. Combined loss reserves were 2.10% of the company's guaranty book of business on September 30, 2009, compared with 0.83% on December 31, 2008.

For the fiscal year 2009, Fannie Mae's net loss loss attributable to common stockholders totaled $74.44 billion or $13.11 per share, compared to $59.78 billion or $24.04 per share last year.

Net revenues for fiscal year 2009 increased to $22.49 billion from $17.44 billion in 2008.

The company said it adopted new accounting standards for transfers of financial assets and consolidation, effective January 1, 2010. As a result, the company expects to reflect about 18 million loans on its consolidated balance sheet as of January 31, 2010, compared with around two million loans as of December 31, 2009. Further, the company estimates the decrease to its total deficit to be between $2 billion and $4 billion as a result of adoption.

FNM closed Thursday's regular trading at $0.99, down $0.02 or 1.98%, on a volume of 7.58 million shares.

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