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Fannie Mae posts loss of $29 billion

The mortgage giant rescued by the U.S. government says it may need more help.

November 11, 2008|Zachary A. Goldfarb | Goldfarb writes for the Washington Post

Two months after the government began taking over ailing financial companies, one of the largest efforts has failed to go as planned, with the firm complaining that federal officials set overly strict terms and took other unhelpful rescue measures.

Fannie Mae on Monday reported a $29-billion loss for the three months ended Sept. 30 and warned that the mission it was given by the government to help revive the mortgage market could be compromised unless the Treasury Department takes new steps to support the company.

Fannie Mae Chief Executive Herbert M. Allison has approached the Treasury about providing more help, but Treasury Secretary Henry M. Paulson has demurred, according to three sources familiar with the discussions.

Fannie Mae's $29-billion loss, or $13 a share, was the single biggest loss for any U.S. company this year. It compared with a loss of $1.4 billion, or $1.56, in the third quarter of 2007.

More than two-thirds of the company's loss resulted from writing down the value of deferred tax assets, which are credits that can be applied against income taxes.

Fannie Mae said its difficulties had been further compounded by government actions after the takeover that made the task of supporting the housing market even tougher.

The struggles of Fannie Mae, sibling mortgage lender Freddie Mac and other largely nationalized companies underscore the government's difficulty in intervening in private markets in a way that both protects taxpayers and ensures that the rescue efforts succeed.

The government's experience in addressing the financial troubles at Fannie Mae and other financial firms offer a cautionary tale at a time when Washington is debating whether to extend the federal umbrella to Detroit automakers and other beleaguered firms.

Before September, it had been a generation since the government took over a private company out of concern that its failure could endanger the U.S. economy.

At both Fannie and Freddie, the reported losses largely reflected poor decisions by the companies before the government intervened.

Although the government takeover has largely stabilized Fannie Mae, the federal actions have made it difficult for the company to expand its purchases of home loans, in turn undercutting its mission to boost the mortgage market.

The government took a controlling stake in both Fannie and Freddie when the Treasury bailed them out and imposed stiff terms on the help, sending a signal to the market that the Treasury would intervene only at a big cost to shareholders.

In Fannie Mae's case, the government offered in September to extend loans and make direct investments in the Washington, D.C., company to allay concerns that it would collapse.

But the conditions attached to those potential sources of capital made it difficult for Fannie Mae to tap them, in turn limiting its ability to pump money into the mortgage market.

On Monday, Fannie Mae went public with its concerns about this federal assistance. It warned that they "may prove insufficient" to allow the company to routinely pay off its loans or "continue to fulfill our mission of providing liquidity to the mortgage market at appropriate levels."

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