Fannie Mae acknowledged that 2006 was a tough year for financial results on its 10-K-related conference call today, announcing that net income declined to $4.1 billion, compared with $6.3 billion in 2005.

Net interest income was also down to $4.8 billion as the average portfolio balance dropped 9% and the company had 46 basis points of net interest yield compression. Losses on guaranty contracts were $439 million in 2006 compared with $146 million in 2005, which was driven primarily by the slowdown in home price appreciation in 2006, leading Fannie Mae to increase its expectation of modeled credit losses on some of its guaranty pools, Fannie Mae said.

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