Fannie Mae fnm lost $1.4 billion in the third quarter, reducing profits for the first nine months of 2007 by more than half, as credit losses and mounting mortgage delinquencies sour its outlook into 2008, the company said Friday.
Shares of Fannie Mae, the largest U.S. buyer and backer of home loans, sank more than 9% in morning trading.
Fannie Mae posted a loss equivalent to $1.56 a share in the tumultuous July-September quarter, compared with a profit of $629 million, or 79 cents a share, a year earlier. Analysts surveyed by Thomson Financial forecast a 2007 third-quarter profit of 88 cents a share.
Fannie Mae said it expects the housing downturn to continue into 2008, shrinking home prices 4% and depressing demand for mortgages.
Fannie Mae's results clearly showed the ravages of the collapse in high-risk mortgages and ensuing credit crisis of last summer, which rattled global markets, forced more than 50 lenders into bankruptcy and recently battered Wall Street powerhouses Merrill Lynch and Citigroup.
The results also marked a significant milestone for Fannie Mae: They brought the company current in its financial reporting for the first time since 2004, when a massive accounting crisis tarnished its reputation and swept top executives from office.
From January through September, the government-sponsored company said it earned $1.17 a share, down from $3.45 billion, or $3.16 a share, in the period last year. Credit-related expenses, including set-asides to account for bad loans, jumped $1.6 billion, to $2 billion.
The company earned $961 billion, or 85 cents a share, in the first quarter, beating analysts' forecasts of 79 cents, and $1.9 billion, or $1.86 a share, in the second quarter, exceeding forecasts of 99 cents.
The nine months' results reflected the deterioration of the housing market and volatility in the credit markets in the third quarter, Fannie Mae said. Its credit losses, said to have been at historic lows in the three years prior to 2007, jumped by $477 million, to $799 million. The losses mainly were driven by declines in home prices nationwide and continued economic weakness in the Midwest.
Fannie Mae's net interest income, the difference between the cost of borrowing and the amount it receives from loans, fell $2 billion, to $3.4 billion.
"While we're pleased to have current results, they arrive in the midst of one of the most challenging mortgage and housing markets in recent history," company President and Chief Executive Daniel Mudd said.