Transcripts

Fannie Mae's Earnings Are In Keeping With The Housing Crisis

SUSIE GHARIB: Also reporting earnings today, Fannie Mae, the nation's largest buyer of home loans. Fannie lost $2.2 billion in the first quarter or $2.57 a share. The government-backed firm blames the losses on widening credit spreads, larger than expected home price declines and severe loan losses. And as Stephanie Dhue reports, Fannie sees home prices heading even lower.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fannie Mae's losses come as the company is under pressure to do more to help stabilize home prices. CEO Daniel Mudd says despite its current losses, Fannie's future is bright.

VOICE OF DANIEL MUDD, CEO, FANNIE MAE: As the initial shock of home price declines dissipates and markets settle down from the enormous volatility of the past nine months, we're seeing terrific opportunities.

DHUE: Today, the company announced a series of initiatives to help housing recover, including the option to refinance up to 120 percent of a property's current value for borrowers who owe more than their home is worth; a rent-to- own initiative for communities hard-hit by foreclosures; and Fannie will buy jumbo loans, those more than $417,000, for the same terms as smaller loans.

The mortgage giant is also getting a break from regulators. Today, the Office of Federal Housing Enterprise Oversight lifted the restrictions imposed in 2006 to address Fannie's accounting problems and the regulator lowered the amount of capital the company must hold. In response, Fannie Mae will raise $6 billion in new capital and cut its dividend. But finance expert Tom Stanton says the government-sponsored firm will need more capital than that.

TOM STANTON, FELLOW, JOHNS HOPKINS UNIVERSITY: Capital is a deductible on the Federal insurance policy. Once they burn through their capital, if they are taking serious losses as they have been, then we taxpayers are on the hook. Also, there is tremendous potential for systemic risk since so many other institutions hold their paper.

DHUE: Fannie Mae's market share has increased to almost 50 percent. While some see that as a concentration of risk, mortgage industry consultant Howard Glaser says the current risk in Fannie Mae's portfolio is from past loans.

HOWARD GLASER, MORTGAGE INDUSTRY CONSULTANT: Whatever risks there are from the loan portfolios that have been in place for a while, the new loans that are being made now are as safe and sound as any loans that have been made really in decades and that's a good sign for both Fannie and for the mortgage market.

DHUE: Still, Fannie Mae expects the next couple of years to be rough for housing. Today, the company says it sees even more declines, with home prices falling up to 9 percent this year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.