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Fannie Mae unveils loss of $2.3bn Fannie Mae unveils loss of $2.3bn
(21 minutes later)
Problems in the US housing market have pushed mortgage finance company Fannie Mae into the red.Problems in the US housing market have pushed mortgage finance company Fannie Mae into the red.
The group sank to a net loss of $2.3bn in the three months to 30 June, against a profit of $1.97bn last year.The group sank to a net loss of $2.3bn in the three months to 30 June, against a profit of $1.97bn last year.
It comes days after its sister company Freddie Mac posted worse-than-expected results and its top executive warned house price falls are not over yet.It comes days after its sister company Freddie Mac posted worse-than-expected results and its top executive warned house price falls are not over yet.
Both government sponsored firms own, or guarantee, nearly half of the nation's mortgage debt.Both government sponsored firms own, or guarantee, nearly half of the nation's mortgage debt.
As mortgage guarantors, the pair must pay out when people default on their loans. Difficult market
But as a result of recent woes in the US housing market and sub-prime crisis the pair have run into severe difficulty. As mortgage guarantors, Fannie Mae and Freddie Mac, must pay out when people default on their loans.
While they generally maintained higher standards for their lending requirements - unlike some firms which provided mortgages for higher risk customers - the two did lower lending standards during the housing boom and bought securities linked to firms involved in the sub-prime sector. But as a result of recent woes in the US housing market and subsequent sub-prime crisis the pair have run into severe difficulty.
In its latest set of earnings, Freddie Mac set aside $2.5bn, compared with $1.2bn in the first quarter of 2008, and slashed its dividend by 80% to five cents pending board approval. Fannie Mae said that the current housing crisis had added to its woes to the tune of $5.3bn in credit expenses.
The latest losses at the firm - which came in at more than three times analysts' estimates - followed a $2.2bn loss for the first three months of the year.
"Our second-quarter results reflect challenging conditions in the housing and mortgage markets that began in 2006 and have deepened through 2007 and 2008," said Daniel H Mudd, president and chief executive officer of Fannie Mae.
He added that the firm had also taken steps to raise an additional $7bn to help it tackle the "most difficult US housing market in more than 70 years".
As part of the plan Fannie Mae is cutting its dividend from 0.35 cents to 0.05, raising its fees and has taken steps to cut its costs by 10%.