Fannie Mae Spanked by $2.2 Billion Loss

Meanwhile, Bank of America(BAC Quote - Cramer on BAC - Stock Picks), 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 Financial(CFC Quote - Cramer on CFC - Stock Picks) when the bank completes its acquisition in the third quarter.

Fannie shares were shedding 4.7% to $26.96 in recent trading.

Stocks headed lower after Tuesday's opening bell as traders digested Fannie's results and their implications for the broader economy. Fannie's counterpart, Freddie Mac (FRE Quote - Cramer on FRE - Stock Picks) will report results next week, and it also is expected to show big losses.

Fannie's results included $4.4 billion in losses on mortgage-related securities and $3.2 billion in credit-related expenses due to higher charge-offs amid higher defaults and average loan-loss severities.

The company said it expects "severe weakness in the housing market to continue in 2008," and that will "lead to increased delinquencies, defaults and foreclosures on mortgage loans, and slower growth in U.S. residential mortgage debt outstanding."

To cope with its predicament, Fannie said it will cut its common stock dividend to 25 cents a share from 35 cents a share, starting in the third quarter. That will free up an estimated $390 million a year.

Fannie and Freddie both were recently embroiled in massive accounting fraud scandals, resulting in tightened oversight restrictions from the Office of Federal Housing Enterprise Oversight, the federal regulator charged with monitoring the companies. Now, lawmakers are loosening those restrictions and calling for both companies to play a larger role in helping to stabilize the housing market.

OFHEO on Tuesday said it would lift a consent order it placed on the company two years ago and lower the company's capital reserve requirement to 15% from 20% after the money is raised.

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