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Fannie Mae Seeks $1.5 Billion in Aid

Fannie Mae narrows its loss for the second quarter, but announces that it still requires an additional $1.5 billion in aid.



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Fannie Mae


requested an additional $1.5 billion of funds from the U.S. Treasury to meet its net-worth deficit after it reported a loss for the second quarter.

That would raise Fannie Mae's total bailout from the Treasury to $86.1 billion, including the $8.4 billion worth of funding it received to plug its deficit in the first quarter.

The country's biggest residential mortgage financier, Fannie Mae reported a net loss of $3.1 billion or 55 cents per share for the second quarter, lower than its loss in the year-ago quarter of $15.1 billion or $2.67 per share. The Fannie Mae loss figure includes $1.9 billion of dividends paid on its senior preferred stock held by Treasury

Revenue rose to $4.5 billion, 13% higher than the year-ago quarter and 49% higher than the first quarter of 2010 for Fannie Mae.

Fannie Mae reduced its losses on the back of a decrease in the rate of seriously delinquent loans in the second quarter to 4.9% from 5.7% in the first quarter. Credit-related expenses declined 75% to $4.85 billion from the year-ago quarter. The company expects credit-related expenses to remain elevated through 2010.

The government took control of the government-sponsored mortgage financiers, Fannie Mae and Freddie Mac, in 2008 after toxic mortgages threatened to swallow their capital reserves. The agencies have received about $145 billion in bailout money since then.

While most banks have managed to repay bailout funds and even ratchet up profits, Fannie Mae continues to turn in losses -- and the likelihood of taxpayers getting back their full investments has become increasingly dim.

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So far the government has been unable to figure out a way to resolve the problems of Fannie Mae and Freddie Mac without rocking the housing market. Even as their losses mount, both the agencies, which control over half the U.S. residential market, have continued to guarantee and insure loans as well as re-modify them for borrowers struggling to pay off their debt. That has helped prop the housing market and send mortgage rates to record lows.

During the first half of 2010, Fannie Mae purchased or guaranteed $423 billion in loans, which includes approximately $170 billion in delinquent loans the company purchased from its single-family mortgage-backed securities trusts. Since January 2009, Fannie Mae has helped finance 4.1 million single-family loans and 487,000 multi-family units.

In the second quarter, Fannie Mae completed home retention workouts (modifications, repayment plans and forbearances) for more than 132,000 loans, 26% higher than the number of those completed in the first quarter.

Fannie Mae estimates that home prices improved 2.2% in the second quarter. It expects housing prices to decline slightly for the balance of 2010 and 2011 before stabilizing and that home sales will be flat for 2010.

"Across our industry, we are seeing a more realistic approach to housing and lending that bodes well for the future," said CEO Mike Williams. "At Fannie Mae, we are committed to maintaining appropriate standards while also supporting affordable housing for low- and middle-income families. We will also continue to support a variety of programs to reach borrowers who need help, so that whenever possible, they can avoid foreclosure and stay in their homes," he said.

The penny stock shed nearly 9% on Thursday to close at 36 cents.

-- Reported by Shanthi Venkataraman in New York.

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