Fannie Mae Reports Bigger Than Expected Loss

Fannie Mae posted a big first-quarter loss of $2.2 billion Tuesday and said it planned to raise $6 billion through a stock offering to shore up its balance sheet.

It's the third consecutive quarterly loss the mortgage giant has posted as it warned of further drops in home prices over the coming months. In a call with analysts, Fannie Mae's president and CEO, Daniel Mudd said, "I think that right now, we are in the belly of the cycle, but the initial period of disruption in the market place appears to be dissipating. The capital markets are recovering balance and as the market recovers, we will be a prime beneficiary."

Fannie Mae reported $4.4 billion in fair value losses, a reflection of loss of market worth of its various holdings, which compares to a $566 million fair value loss charge 12 months ago.

Plunging property prices and rising foreclosure rates that began with the subprime crisis are now having an impact on loans made by borrowers with better credit profiles. This has now resulted in both government backed players, Fannie Mae and Freddie Mac, which insure and buy only prime loans are now seeing their portfolios hit by mortgage market deterioration.

Fannie Mae's stock initially dropped following its loss announcement, but quickly rebounded and was up to around 9% as of Tuesday afternoon after Moody's affirmed Fannie's debt rating.