Fannie Mae posted yet another stunning loss in the third quarter, $18.8 billion, noting that it now owns or guarantees close to $200 billion in nonperforming assets.
The steep loss resulted in the government-controlled GSE having a net worth deficit of $15 billion at the end of September. In tandem with the loss, its regulator has asked the Treasury Department for $15 billion to bring the GSE's net worth above zero. Over the past five quarters, the GSE has lost $85 billion.
In a new filing with the Securities and Exchange Commission (SEC), Fannie Mae offered a slight glimmer of hope for the future: its guarantee fee income rose 12% in the quarter to $1.9 billion (compared with the second quarter).
It also predicts that "absent further economic deterioration" its credit-related expenses will be less in 2010 than this year. With the third quarter under its belt, Fannie Mae now has combined credit loss reserves of $65.9 billion. Its credit book of business now stands at $3.23 trillion. Fannie Mae and its sister company, Freddie Mac, were taken over by the government in September 2008 and placed into separate conservatorships.
Meanwhile, in related company news, the Federal Housing Finance Agency (FHFA) has cleared Fannie Mae to sell roughly $2.6 billion in low-income housing tax credits (LITC) to unidentified third-party investors believed to include Goldman Sachs and Berkshire Hathaway.
In a new SEC filing, Fannie noted that it has a "nonbinding letter of intent" to transfer its equity interests in the LIHTCs for an undisclosed amount. The agency said it will sell them for "a price that exceeds their current carrying value. Upon completion of the contemplated transfer, the unrelated third-party investors would be entitled to receive substantially all of the tax benefits from our LIHTC investments for a specified period of time."
Fannie Mae said its regulator told it that it would not object to the sale. The FHFA is now asking for Treasury's approval on the deal.
Fannie Mae said that if it cannot sell the tax credits it will take an other-than-temporary impairment charge "to reduce" their carrying value to zero.
Fannie Mae also rolled out a new program under which it will offer market-rate leases for terms of up to a year to troubled borrowers who turn over the deeds to their homes.
The company offered no estimates on how many borrowers it thinks might use the program. The GSE's Deed for Lease effort is designed for homeowners headed toward foreclosure that do not qualify for loan modifications. They must document that the market rate rent does not exceed 31% of their gross income.
Buyers of foreclosed properties are to assume the leases. Since January, Fannie has offered month-to-month leases to tenants whose landlords have lost their properties to foreclosure.
Freddie Mac has offered month-to-month leases to both tenants and former borrowers since March.
To date, neither effort has generated much use. Last month, Fannie said it had executed just 200 leases to date.