May 06, NEW YORK - Fannie Mae on Tuesday posted a massive quarterly
loss, its third straight, on the protracted U.S. housing market slump,
prompting it to slash its dividend and set plans to raise $6 billion
of fresh funds.
Still, executives of the largest U.S. provider of home financing were
cautiously optimistic that the worst of the credit turmoil that
erupted from the housing crisis may have passed. Their comments
triggered a big rally in Fannie Mae shares and sup****ted a wider
advance in U.S. stocks.
"We're taking a long-term view, not an hour or a week or a month, and
we think that in a couple of years this stock will be materially
higher because there will be a recovery in the housing industry," said
Marshall Front, chairman of Front Barnett Associates in Chicago, which
holds Fannie Mae shares.
Earlier the stock fell on concern over the deeper-than-expected
quarterly loss and credit-related expenses. Fannie Mae posted a net
loss, after payment of preferred dividends, of $2.51 billion, or $2.57
per share, for the first quarter, according to a regulatory filing.
Before preferred dividends, it posted a loss of $2.19 billion.
The loss was greater than even the most pessimistic forecast and came
on the heels of a record $3.6 billion loss in the fourth quarter of
2007. In last year's first quarter, just before the slump in the
housing market torpedoed mortgage and credit markets, Fannie posted a
profit, after preferred dividend payments, of $826 million, or 85
cents per share.
Fannie Mae's loss and need to raise capital reflect the plight of
financial services companies worldwide, which have written off more
than $330 billion in soured mortgage securities and raised more than
$200 billion to shore up depleted balance sheets.
Market sentiment turned when company officials in a conference call
stressed that the quality of the mortgages it is buying has improved
and its fee structure now better reflects market risk.
They also said the housing market is now in the "belly" of one of the
worst cycles since the Great Depression, suggesting the nadir may be
in sight.
FURTHER DECLINES LIKELY
Still, U.S. 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, the
company said.
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