Fannie Mae Posts $18.9 Billion Q3 Loss, Taps Treasury

NEW YORK (Reuters) - Fannie Mae, the largest provider of funding for U.S. home loans, said on Thursday bad mortgages and a federal foreclosure prevention program left it with a $18.9 billion loss, forcing it to tap the Treasury again to plug a hole in its net worth.

Fannie Mae , seized by the government last year, said the quarterly loss stemmed from $22 billion in credit-related expenses. These included charges on mortgages it bought out of securities as it modified loans under President Barack Obama's foreclosure prevention plan.

The company also boosted its provision for credit losses in future quarters, and said it expects those impairments to increase this quarter and through 2010.

The assessment is dire for the housing market that has appeared to post a fragile recovery over the past several months with a rebound in home sales and prices in some regions.

The company's expectations of future losses and need for Treasury cash complicate the issue of how to extricate it from taxpayer support, while also trying to prevent a more serious fallout in U.S. housing.

"It appears evident that they will remain under conservatorship indefinitely," said Rajiv Setia, a debt strategist at Barclays Capital in New York. "There is no way to privatize them in this environment. It could actually be a full decade before something like that happens."

OBAMA PLAN LOSSES

Fannie Mae said much of its energy in the third quarter went to implementing Obama's Making Home Affordable Program.

Under the program, mortgage companies are urged to refinance or modify loans for homeowners facing foreclosure. But the program also means that Fannie Mae and rival Freddie Mac, which guarantee a vast portion of U.S. mortgages, must extract the loans from securities and often recognize a loss.

Serious" delinquencies 90 or more days past due, or in foreclosure, increased as the company urged mortgage servicers to seek ways to keep borrowers in their homes. Rising unemployment prevented borrowers from finding alternatives, it said.