Fannie Mae Earnings: It's Not Pretty

FNMA (FNM) has released its Q2 earnings report and it is not a pretty sight. The firm reported a net loss of $2.3 billion in Q2 after losing a cool $2.32 billion in Q1.The chief factor driving the loss was a sharp increase in provisions for credit losses. In Q2 FNMA reports a credit expense of $5.3 billion which is significantly higher than the ugly $3.2 billion blemish of Q1.

The company made it clear the losses will be around for quite some time, with 2008 being the peak year. However, the company specifically stated that losses in 2009 would be “significant”. Here is how the company describes the situation.

While we continue to expect home price declines in 2008 to be within our estimated 7 to 9 percent range, and peak-to-trough home price declines to be within our estimated 15 to 19 percent range, we see the trend moving toward the high end of those ranges, driven in particular by higher home price declines in certain regions. We are increasing our forecast for our credit loss ratio for the full-year to 23 to 26 basis points, as compared to our previous guidance of 13 to 17 basis points. We continue to anticipate that our credit loss ratio will increase further in 2009 compared with 2008. We also expect significant additions to our combined loss reserves through the remainder of 2008. Finally, while we expect that 2008 will be our peak year for credit-related expenses, the total amount of credit-related expenses will be significant in 2009.

Comments

[gabe borens...:]

The 52 week high on the FNM is 70 dollars plus.Fnm sharesare trading close to the bottom at 9 dollars .
Clearly the stock price implosion was anticipatory in nature and is reflecting today's announcement.
At this point in time ,projecting unpredictable home prices and reflecting the worse case scenario,is a very strategic and a wise move. Given the current FNMA projections for 2009 ,the market will definitaely do better than this.
The housing market is bottoming now.All of the economic analysis appears to ignore the likely massive inflows into the dollar denominated assets.This will happen and will have a significant impact on the housing market.To date we have witnessed foreign interest almost exclusively in the in the New York housimg market .That is about to change.The underlying dynamics of the U.S economy are about to surface and the housing sector is about to rebound.What happened to all of the housing market bears last year when the FNM and FRE stocks were trading on the high?
I certainly had been warning investors about the implosion ahead -did i feel lonely then.
By 2009 the median home price should be up at least10% from the current prices.
Allegedly gold is up because of the inflationary fears .
Cyclically ,home prices have been rising with the rate of inflation.
This is one sector with a lot of catching up to do.

2008 Aug 08 12:58 PM

[Vox Rationalis:]

Cite something, Gabe. I won't question everything you wrote, but I will ask you this: WHY would there be a "massive inflow" into dollar-denominated assets?

2008 Aug 08 01:38 PM

[gabe borens...:]

Massive economic implosion in Europe and Emerging Market countries-it will happened and I gave my reasons for it. My track record is better than most strategists.I have predicted the current debacle over the past two years in various media interviews.I could not help but notice that MBIA could not hold of all the gains because major speculative shorts are distorting the future flows.
Story after story we are subjected to a hysteria.
U.S economy is on the way to a major recovery as is the financial sector.I suspect that the bond insurers will have more good news to report simply because their costumers depreciated the value of "insured" paper too aggressively leaving romm for "negotiations".I would not be surprised if Ambac had some great news in the period ahead. Volatility and the market risks will continue to exist.
You obviously have a different opinion , and I respect it .

2008 Aug 08 02:09 PM

[CapitalFools:]

Fannie and Freddie should be private firms that compete in the marketplace, just like Citigroup and Washington Mutual. Extending the implicit backing of the government to these firms (Fannie and Freddie), and thus taxpayer dollars, without accompanying government oversight is poor policy. Although these firms are too big to fail this does not mean that their stockholders will not be wiped out entirely in the coming years. I'm bullish on their debt (government-backed) and bearish on the equity of either company.

2008 Aug 08 02:24 PM

[believeItOr...:]

"By 2009 the median home price should be up at least10% from the current prices." - Gabe you're an idiot. This is so abritrary and your "economic analysis" has fallacy all over it... this is prob. the same analysis the the National Association or RealTards use... I agree... "Cite your sources"

2008 Aug 08 04:00 PM

[Real Estate...:]

BS Detector: Hoorah to you.

This guy Bernstein is a retard. Or rather, a Realtard. I smell this guy is from the Real Estate Industry.

The market will not so much continue to go down as it will continue to correct itself.
Bet we also need two other variables to exist: Real wage increases and population increases.

Until then, market declines are an imminent reality.

2008 Aug 08 04:02 PM

[Real Estate...:]

Yo Bernstien,

Post your address. I want to send you an invoice for: a) wasting everybody's time; b) surplus charge for making yourself look really stupid.

This guys a joke! Someone contact the SA tech support and have this guy removed from the Blog. This dude reaks of "interest only."

2008 Aug 08 04:08 PM

[Real Estate...:]

Ok, Ok, Schlepstein:

How is the US (service economy) "headed for a rebound?" This makes absolutely no sense.

You have some random alterior motive that I can't figure out.

As far as you predicting collapse. This is also wrong. Peter Schiff actually made the prediction in "Crash Proof."

2008 Aug 08 04:21 PM