Fannie Shares Recover After Grim Results

The stock market looked past grim earnings results at Fannie Mae (FNM) on Tuesday and focused on the prospect of a wider role for the government-backed mortgage giant in the floundering U.S. housing market.

Fannie reported a $2.19 billion first-quarter loss before Tuesday's opening bell that caught Wall Street off guard and sent stocks tumbling. The largest buyer of U.S. home loans said it will raise $6 billion in fresh capital -- a move federal regulators have demanded -- and it slashed its quarterly dividend payments by 29% to preserve cash. It also reported that its loan-loss provision soared to $5.2 billion from $249 million, as CEO Daniel Mudd said he doesn't expect a real recovery in the U.S. housing market before 2010.

Nevertheless, shares of Fannie reversed into positive territory in early trading after it reported results, recently adding $1.46, or 5.1%, to $29.75. The rally came as the Office of Federal Housing Enterprise Oversight, the federal regulator charged with monitoring government-sponsored housing giants Fannie and Freddie Mac (FRE), announced it would lift a consent order it placed on Fannie two years ago and lower the company's capital reserve requirement to 15% from 20% after the capital raise.

Cramer: Fannie Packs a Value Punch

Fannie and Freddie both were recently embroiled in massive accounting fraud scandals, resulting in tightened oversight restrictions from OFHEO, the federal regulator charged with monitoring the companies. Now, amid pressure to provide relief to in the secondary mortgage market where credit conditions have largely dried up, lawmakers are loosening those restrictions and calling for both companies to play a larger role in helping to stabilize the housing market.