Tuesday, March 2, 2010

"Buried in Fannie’s Filings: Signs of Improvement" (FNM; FRE)

The fact that something is positive for the overall business does not necessarily mean it is good for the common shareholders. I still think that a year from now when the Administration unveils it's plan for the former GSE's, the common will end up with some warrants or an equity stub as a residual claim on the cash-flows.
From the Wall Street Journal's Developments blog:

Buried in Fannie Mae’s federal filings that reported an eye-popping $72 billion annual net loss for 2009 are some signs that the mortgage crisis that began three years ago is easing.

Fannie reported a $15.2 billion fourth-quarter loss, down from $25.5 billion during the year ago period. But the annual loss was worse than the year-earlier loss of $58.7 billion.

Still, the company said it hadn’t added to its loss reserves in the fourth quarter and that its provisions for credit losses had actually declined because “the pace at which loans transitioned to seriously delinquent status” had moderated. Also, stabilizing home prices mean the company may post less-severe losses than expected on homes that sell out of foreclosure.

This doesn’t mean that Fannie is out of the woods–not by a long shot. Efforts to modify loans have slowed down the foreclosure process and that means the company now has to take great care in handling a growing inventory of foreclosed homes. By unpaid principal balance, around 6.9% of all loans guaranteed by Fannie were 90 days or more past due at the end of December, up sharply from 3% one year ago. And some analysts say that Fannie and its smaller rival, Freddie Mac, are under-reserving for losses.

But the number of new problem loans coming into the system may be easing: some 2.38% of all loans guaranteed were 30 days or more delinquent at the end of December, down from 2.53% one year ago....MORE