Fannie Mae Posts More Losses, Cuts Dividend

Fannie Mae posted a net loss of $2.3 billion, excluding preferred dividend payments, and said it would slash its dividend by 85 percent.  The mortgage lender booked $5.35 billion in credit-costs as it increased loan loss provisions and charge-offs.  One would think that investors could no longer be surprised by the magnitude of Fannie's losses after the recent precipitous plunge in the mortgage lender's stock and the disappointing losses reported by Freddie Mac yesterday.  Yet the stock is down another 14% in pre-market trading, so apparently someone was surprised.  According to CNBC, 49% of the losses came from Fannie's Alt-A portfolio of mortgages.  I wrote about Fannie Mae's $344.6 billion in Alt-A exposure on May 7th, and wondered at the enthusiasm surrounding Fannie's last earnings report.  I felt that the company had enormous exposure to losses from Alt-A's given how poorly those assets are performing and considering the amount of leverage that Fannie employs.  The good news is that Fannie's debt is now officially guaranteed by the US taxpayer which protects the rest of the banking system from catastrophic losses due to a Fannie Mae default.  It is growing increasingly likely that Fannie will be sporting some fresh capital that is also guaranteed by the US taxpayer, which doesn't help Fannie's current shareholders, but will keep the housing market from complete and total collapse due to a lack of financing.  Nevertheless, if financials can rally in the face of this awful news, then maybe we really have found the bottom.