Fannie Mae: Latest Quarterly Results Convey Reckless Financing

Aug. 7.09 | About: Fannie Mae (FNMA)

Fannie Mae (FNM) has the luxury of marking its accounts more accurately because they have no fear of being nationalized or going bust since they already have hit the wall. So when we read the latest quarterly results from Fannie Mae, we are not just seeing a glimpse of Fannie’s reckless financing, but of the American financial system as a whole.

From Fannie Mae’s Q2 press release (note the emphasis added):

Fannie Mae… reported a loss of $14.8 billion, or ($2.67) per diluted share, in the second quarter of 2009, compared with a loss of $23.2 billion, or ($4.09) per diluted share, in the first quarter of 2009. Second-quarter results were driven primarily by $18.8 billion of credit-related expenses, reflecting the ongoing impact of adverse conditions in the housing market, as well as the economic recession and rising unemployment. Credit-related expenses were partially offset by fair value gains. The company also reported a substantial decrease in impairment losses on investment securities, which was due in part to the adoption of new accounting guidance…

Combined loss reserves were $55.1 billion on June 30, 2009, up from $41.7 billion on March 31, 2009, and $24.8 billion on December 31, 2008. The combined loss reserves were 1.80 percent of our guaranty book of business on June 30, 2009, compared with 1.38 percent on March 31, 2009, and 0.83 percent on December 31, 2008.

Translation: we lost over $40 billion and our loss reserve rate has more than doubled in 6 months. We are a financial bottomless pit.

How about this statement on page three:

Total nonperforming loans in our guaranty book of business were $171.0 billion on June 30, 2009, compared with $144.9 billion on March 31, 2009, and $119.2 billion on December 31, 2008.

That’s $171.0 billion in NPLs, not million. Breathtaking. Needless to say, Fannie has its hands out for more taxpayer money – $10.7 billion to cover their net worth deficit from this quarter alone to be exact.

But, the reported net worth deficit of $10.6 billion does not represent figures according to fair value. That is covered on page six (emphasis added):

Our estimated fair value net asset deficit was $102.0 billion as of June 30, 2009, compared with $110.3 billion as of March 31, 2009.

Is Fannie far worse off than, say, Citi (NYSE:C) or BofA (NYSE:BAC), or are they reporting their numbers somewhat closer to mark-to-market? The scale of the losses seem astronomical.

More here.