Fannie Mae Reports Second-Quarter Losses, Impact on LIHTC Partnerships

August 6, 2009
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Mortgage-lender Fannie Mae has reported a loss of $14.8 billion in the second quarter of 2009, compared with a loss of $23.2 billion in the first quarter of 2009. Second-quarter results were driven primarily by $18.8 billion of credit-related expenses, reflecting the ongoing impact of adverse conditions in the housing market, as well as the economic recession and rising unemployment.

On August 6, 2009, the director of the Federal Housing Finance Agency (FHFA), which has been acting as Fannie Mae’s conservator since September 6, 2008, submitted a request for $10.7 billion for the U.S. Department of the Treasury on Fannie Mae’s behalf. FHFA has requested that Treasury provide the funds on or prior to September 30, 2009.

According to Fannie Mae’s report, Housing and Community Development’s (HCD’s) multifamily guaranty book of business was $179.6 billion on June 30, 2009, compared with $175.3 billion on March 31, 2009, and $173.3 billion on December 31, 2008. HCD recorded $571 million of losses on partnership investments during the quarter. As with the second half of 2008 and the first quarter 2009, Fannie Mae said it is currently unable to recognize tax benefits generated from its partnership investments, including tax credits earned on low-income housing tax credit partnership investments.

HCD’s credit-related expenses were $393 million, compared with $542 million in the first quarter of 2009. The provision for credit losses of $381 million exceeded net charge-offs of $36 million by $345 million as Fannie Mae continues to build its loss reserves. This increase, Fannie Mae notes, was driven primarily by larger loans within the non-performing loan population and increased reliance on the most recent severity experience, which is a reflection of the current economic recession and lack of liquidity in the market. HCD lost $930 million in the second quarter of 2009.

The issuance of second quarter results comes on the heels of a recent report by The Washington Post that President Barack Obama is considering a restructuring of Fannie Mae and Freddie Mac as one of several options for dealing with the troubled mortgage companies. The U.S. government now has a majority share in the two companies, which were created by the government but controlled by private shareholders.