Fannie Mae hit by $25.2 billion loss in Q4

Government sponsored entity (GSE) Fannie Mae announced losses of $25.2 billion for the fourth quarter of 2008 yesterday, linked to mortgage defaults, falling home prices and ailing credit markets. The poor showing was driven by $12.3 billion in net fair value losses, credit-related expenses of $12 billion and securities impairments of $4.6 billion.

Largely contributing to the mortgage agency's poor result was an $11.4 billion mark-to market loss due to declines in the value of derivatives contracts used to hedge interest rate risk on its mortgage portfolios. The GSE also saw a $1.9 billion loss in trading securities losses as a result of widening credit spreads.

Fannie Mae lost a total of $58.7 billion in the full calendar year, compared with a $2.1 billion loss in 2007.

The GSE, which entered into government conservatorship with the Federal Housing Finance Agency (FHFA) on September 6, requested $15.2 billion from the US Treasury under a senior preferred stock purchase agreement to restore its net worth. As of December 31, the firm's net worth was minus $15.2 billion, down from $9.4 billion at the end of September.

Indicating the outlook for US mortgage market remains gloomy - and also not ruling out the possibility that it will request further assistance - Fannie Mae said: "We expect the market conditions that contributed to our net loss for each quarter of 2008 to continue and possibly worsen in 2009, which is likely to cause further reductions in our net worth."

See also: US Treasury doubles aid to Fannie Mae and Freddie Mac
Fannie Mae and AIG pummelled in Q3