Fannie Mae faces billions more in new losses

Stephen Ryan, an accounting professor and derivatives specialist at New York University who analyzed the Fannie Mae financial reports, told The Journal that some or all of the $2.76 billion in losses may have to be counted against the company’s second-quarter earnings and the reserve capital it is required to hold as security against risk.

OFHEO last month gave Washington-based Fannie Mae a three-month extension for boosting the capital cushion by $5 billion. The company has been reducing its portfolio of mortgage loans even faster than expected as it prepared to meet the regulators’ original June deadline.

In recent weeks the company also has raised fresh capital by issuing some $5 billion in preferred stock and slashed its first-quarter dividend payout by half, to 26 cents a share, to make up its anticipated shortfall.

To cut costs, Fannie Mae recently stopped awarding stock options to senior managers.

Fannie Mae and Freddie Mac, its smaller rival in the $8 trillion home-mortgage market, have wielded influence in Congress and traditionally have been heavy contributors to lawmakers of both parties. The accounting crisis at Fannie Mae, and Freddie Mac’s disclosure in June 2003 that it had understated profits by some $4.5 billion for 2000-2002 in an effort to smooth earnings, have bolstered calls by lawmakers and government officials for tighter regulation of the two and curtailment of their privileges.

Fannie Mae and Freddie Mac were created by Congress to pump money into the home-mortgage market. They buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bundle them into securities that are resold to investors worldwide.

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