by Calculated Risk on 8/06/2009 06:03:00 PM

Fannie Mae Press Release: Loss of $14.8 Billion Driven by Credit-Related Expenses

Fannie Mae (FNM/NYSE) reported a loss of $14.8 billion, ... in the second quarter of 2009, compared with a loss of $23.2 billion, ... 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.

Taking into account unrealized gains on available-for-sale securities during the second quarter and an adjustment to our deferred tax assets due to the new accounting guidance, the loss resulted in a net worth deficit of $10.6 billion as of June 30, 2009. As a result, on August 6, 2009, the Director of the Federal Housing Finance Agency (FHFA), which has been acting as our conservator since September 6, 2008, submitted a request for $10.7 billion from the U.S. Department of the Treasury on our behalf under the terms of the senior preferred stock purchase agreement between Fannie Mae and the Treasury in order to eliminate our net worth deficit. FHFA has requested that Treasury provide the funds on or prior to September 30, 2009.
...
Credit-related expenses, which are the total provision for credit losses plus foreclosed property expense, were $18.8 billion, compared with $20.9 billion in the first quarter of 2009. Our provision for credit losses was $18.2 billion, compared with $20.3 billion in the first quarter of 2009. The reduction in the provision for credit losses in the second quarter was attributable to a slower rate of increase in both our estimated default rate and average loss severity, or average initial charge-off per default, as compared with the first quarter. Our provision exceeded net charge-offs of $4.8 billion by $13.4 billion, as we continued to build our combined loss reserves, which represent our current estimate of probable losses inherent in our guaranty book of business as of June 30, 2009.

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. ...

We are experiencing increases in delinquency and default rates for our entire guaranty book of business, including on loans with fewer risk layers. Risk layering is the combination of risk characteristics that could increase the likelihood of default, such as higher loan-to-value ratios, lower FICO credit scores, higher debt-to-income ratios and adjustable-rate mortgages. This general deterioration in our guaranty book of business is a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices. Certain states, higher risk loan categories and our 2006 and 2007 loan vintages continue to account for a disproportionate share of our foreclosures and chargeoffs.

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. The carrying value of our foreclosed properties was $6.2 billion, compared with $6.4 billion on March 31, 2009, and $6.6 billion on December 31, 2008.
emphasis added

Fannie Mae has reserved seating at the confessional. NPLs of $171.0 billion. Wow.