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Fannie Posts Loss, to Raise $6 Billion

Nat Worden

Government-sponsored mortgage giant Fannie MaeFNM posted a big first-quarter loss Tuesday and said it would raise $6 billion through a stock offering to shore up its balance sheet.

Fannie lost $2.2 billion, or $2.57 a diluted share, in the quarter, driven by $4.4 billion in mark-to-market fair value losses to derivative securities and widening credit spreads. The company also increased its provision for credit losses to $3.2 billion, due to increased charge-offs.

Analysts polled by Thomson Reuters had expected a loss of 81 cents a share.

Federal regulators have directed Fannie to raise capital to address its depleted balance sheet as the housing slump continues and credit crisis lingers. Fannie said it would raise its $6 billion through offering of common, noncumulative, mandatory convertible preferred and nonconvertible preferred stock.

The Office of Federal Housing and Enterprise Oversight, Fannie's regulator, responded by saying it would lift a two-year-old consent order it placed on the company after an accounting scandal and lowering the company's capital reserve requirement to 15% from 20% after the money is raised.

Fannie also said it would cut its dividend by 10 cents to 25 cents a share beginning in the third quarter. The move will save $390 million annually, Fannie said.

Fannie shares were shedding 7.2% to $26.25 in recent premarket trading.

Mortgage lenders have been hit hard in the credit crisis beginning last summer, a situation that has not improved of late.

Bank of AmericaBAC, in a Securities and Exchange Commission filing last week, said it hadn't yet decided whether it will take on certain mortgage debt from Countrywide FinancialCFC when the bank completes its acquisition in the third quarter.

Fellow government-sponsored mortgage lender Freddie MacFRE reports results May 14.