Fannie Mae doubles net losses

Fannie Mae, the largest US home lender, on Friday predicted that the US housing market would deteriorate “for the next couple of years” as it reported a more than doubling of net losses for the third quarter. House prices were not expected to stabilise until 2009, it said.

Fannie’s earnings numbers exposed further evidence of the damage from the summer’s subprime mortgage meltdown. Its third-quarter net loss was $1.39bn, compared with $629m in the same period the previous year.

The results were Fannie’s first up-to-date financial statements since 2004, when a $6.3bn accounting mis-statement led to the imposition of federally mandated restrictions on its mortgage portfolio. Fellow government-sponsored provider Freddie Mac was hit by similar problems.

Daniel Mudd, Fannie Mae’s chief executive, said house prices were likely to fall by an average of 2 per cent across the US this year, with the decline increasing to 4 per cent next.

Fannie’s earnings had fallen largely because of economic weakness in the Midwest, with Illinois, Indiana and Ohio “very economically depressed”.

Conditions would remain “challenging” as the markets worked through a 10-month inventory of new homes, and as credit markets worked through pricing issues. “We’ve been through the disruption and we’re now in a period of dislocation,” Mr Mudd said.

The disclosures came as Freddie Mac said it would pay Dick Syron, chief executive, a “special extension bonus” of $3.5m for staying at the helm of the company until 2009.

Mr Syron would also be eligible for a performance bonus of up to $6m if he met certain targets, including “remediation of all material weaknesses and significant deficiencies” disclosed in earlier Freddie financial statements.

Fannie said it was talking to its regulator, the Office of Federal Housing Enterprise Oversight, about relaxing the limits on its mortgage portfolio. Fannie has argued that it should be allowed to expand its portfolio to inject further liquidity into the mortgage and mortgage securitisation market.

However, the OFHEO said Friday the earliest it would remove Fannie Mae’s portfolio cap would be in February next year.