Fannie Mae while battling losses will end buying Alt-A Mortgages

August 8, 2008 by · Leave a Comment
Filed under: Industry News 

Bloomberg reported after posting its fourth straight quarterly loss of $2.3 billion dollars. The behind them declining to purchase Alt-A mortgage loans is because most of the borrows do not have proof of their income which greatly increases the probability of default.

Release:

Fannie Mae, the largest U.S. mortgage- finance company, will stop buying or guaranteeing Alt-A mortgages because of surging losses from home loans to borrowers without proof of their finances.

Fannie won’t accept new Alt-A loans after Dec. 31, according to a statement today. The mortgages, which make up about 11 percent of the $3 trillion financed by the Washington-based company, accounted for almost half of second-quarter credit losses, Chief Financial Officer Stephen Swad said today on a conference call.

The debt, generally considered between prime and subprime in terms of expected defaults, has “driven our credit expenses,” Chief Executive Officer Daniel Mudd said on the call. “Alt-A foreclosures have doubled in southern California.”

Government-chartered (GSE) Fannie Mae and Freddie Mac have been tightening standards and raising fees since last year to boost revenue and limit losses amid the worst housing slump since the 1930s. The changes, along with pullbacks in other sources of home financing and the rising yields over benchmarks being demanded on even the safest mortgage securities, have made borrowing harder or more expensive for consumers, contributing to deeper drops in property prices and surging foreclosures.

Fourth Straight Loss

Fannie today reported its fourth straight quarterly loss. After the $2.3 billion loss, which included $5.3 billion in credit-related expenses, the company is also ramping up efforts to force lenders to repurchase defaulted Alt-A loans, Mudd said. The shares fell 89 cents, or 8.9 percent, to $9.06 as of 1:18 p.m. in composite trading on the New York Stock Exchange.

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