by Calculated Risk on 8/16/2007 09:51:00 AM

From the WSJ: Fannie Mae Profit Fell in 2006, Expects Higher Delinquencies

Fannie Mae ... said it expects higher delinquencies and credit losses this year amid the ongoing credit market turmoil.
...
Fannie said negative-amortizing adjustable rate mortgages -- loans on which homeowners don't even have to pay the full monthly interest payments -- made up close to 3% of its single-family business volume in 2005 and 2006, while interest-only ARMs were roughly 9% of volume and about 7% as of June 30. Combined, Fannie said both loans represented roughly 6% of its credit book of business at the end of 2005 and 2006 and June 30.

Fannie's mortgage credit book of business, which includes mortgage assets in its investment portfolio, the firm's mortgage-backed securities held by third parties and credit enhancements provided on mortgage assets, was $2.6 trillion as of Mar. 31, or approximately 23% of total U.S. residential mortgage debt outstanding.

Fannie said as of June 30, about 12% of the single-family mortgage book of business was Alt-A, or near-prime, mortgages or structured Fannie mortgage-backed securities backed by Alt-A loans. That is up from 11% as of Dec. 31.

Subprime loans made up 2.2% of the single-family book of business as of June 30 and the end of 2006, with most of that in private-label mortgage-backed securities.

Looking ahead, Fannie expects higher delinquencies and credit losses this year compared with 2006, "and the increase in our exposure to credit risk resulting from our purchase or securitization of loans with higher credit risk may cause a further increase in the delinquencies and credit losses we experience." Such an increase "is likely to reduce our earnings ... and also could adversely affect our financial condition."