Hold Your FNMA Fannie & FHLMC Freddie II
FNMA, #1 US mortgage finance co, 4th straight quarterly loss -$2.6 billion vs profit of $1.82 billion a year ago, YTD -$7.8 billion pretax loss.
Credit losses +66% to $5.3 billion and 10X a year ago $518 million, combined loss reserves $8.9 vs 1.1 billion.
Slashed divident 85%; will reduce operating costs 10% by 2009.
Will also stop buying Alt-A loans which make up 11% of its portfolio, but are responsible for 60% of it's losses.
Level 3 recurring assets $56.5 billion or 16% of total recurring assets at fair value.
Fair Market Value: Total Financial Assets -$10 billion; $831 vs $841 billion; Total Financial Liabilities +$36 billion; $874 vs $838 billion.
Near insolvency: Fair Market Value Liabilities vs Assets: -$43 billion vs $47 billion in core capital.
Insolvent to common shareholders: FMV Total Shareholder Equity $12.4 billion vs $41.2 billion.
Loans more than three-months past due more than doubled last year's level to 1.36%.
CEO Daniel Mudd forecast a "significant" increase in reserves for the rest of the year as the housing market deteriorates.
"The housing market has returned to earth fast and hard. This market disruption caused a significant increase in
our cost of funding and a substantial increase in mark-to-market losses on our trading securities arising from a significant widening of credit spreads.
In addition, during July, credit performance continued to deteriorate, and we recorded charge-offs and foreclosed property expenses
that were higher than we had experienced or expected, driven by higher defaults and higher loan loss severities in markets most affected by the steep home price declines.
The significant reduction in liquidity in the mortgage markets, along with the increase in mortgage credit risk, that was observed in the second half of 2007
has persisted and continued to exert downward pressure on the valuations of these loans."
Paul Miller, an analyst at Friedman, Billings, Ramsey: "Neither of these companies have properly provisioned for what we're heading into.
This thing is going to get worse and last longer and deeper than they originally thought.
It's all based on faith, and who knows when that faith walks away. It can happen within 12 hours.
I don't think it would be good for anybody if we go down that path. The best solution is if the companies raise capital now."
Credit losses +66% to $5.3 billion and 10X a year ago $518 million, combined loss reserves $8.9 vs 1.1 billion.
Slashed divident 85%; will reduce operating costs 10% by 2009.
Will also stop buying Alt-A loans which make up 11% of its portfolio, but are responsible for 60% of it's losses.
Level 3 recurring assets $56.5 billion or 16% of total recurring assets at fair value.
Fair Market Value: Total Financial Assets -$10 billion; $831 vs $841 billion; Total Financial Liabilities +$36 billion; $874 vs $838 billion.
Near insolvency: Fair Market Value Liabilities vs Assets: -$43 billion vs $47 billion in core capital.
Insolvent to common shareholders: FMV Total Shareholder Equity $12.4 billion vs $41.2 billion.
Loans more than three-months past due more than doubled last year's level to 1.36%.
CEO Daniel Mudd forecast a "significant" increase in reserves for the rest of the year as the housing market deteriorates.
"The housing market has returned to earth fast and hard. This market disruption caused a significant increase in
our cost of funding and a substantial increase in mark-to-market losses on our trading securities arising from a significant widening of credit spreads.
In addition, during July, credit performance continued to deteriorate, and we recorded charge-offs and foreclosed property expenses
that were higher than we had experienced or expected, driven by higher defaults and higher loan loss severities in markets most affected by the steep home price declines.
The significant reduction in liquidity in the mortgage markets, along with the increase in mortgage credit risk, that was observed in the second half of 2007
has persisted and continued to exert downward pressure on the valuations of these loans."
Paul Miller, an analyst at Friedman, Billings, Ramsey: "Neither of these companies have properly provisioned for what we're heading into.
This thing is going to get worse and last longer and deeper than they originally thought.
It's all based on faith, and who knows when that faith walks away. It can happen within 12 hours.
I don't think it would be good for anybody if we go down that path. The best solution is if the companies raise capital now."
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