Fannie posts $29B 3Q loss, $100B may not be enough

Fannie Mae on Monday posted a $29 billion loss in the third quarter as it took a massive tax-related charge, and warned that its $100 billion lifeline from the government may not be sufficient for its solvency should it continue to lose money.

The mortgage finance company, seized by federal regulators more than two months ago, posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax assets. That compares with a loss of $1.4 billion, or $1.56 a share, in the year-ago period.

Not only may it have to tap the $100 billion federal backstop in the coming months, Fannie said. If the company continues to suffer substantial losses "or to the extent that we experience a liquidity crisis that prevents us from accessing the unsecured debt markets, this commitment may not be sufficient to keep us in solvent condition or from being placed into receivership," it said in a filing with the Securities and Exchange Commission.

Analysts surveyed by Thomson Reuters had expected a loss of $1.60 per share.

Washington-based Fannie Mae's net worth - the value of its assets minus the value of its liabilities - fell to $9.4 billion at the end of September down from $44.1 billion at the end of last year. If that number turns negative, Fannie Mae would be forced to obtain funding from the Treasury Department.

The ultimate bill for taxpayers remains unclear. Jim Vogel, a debt analyst with FTN Financial in Memphis, Tenn., said total aid for Fannie and its sibling company Freddie Mac is unlikely to exceed the $200 billion initially pledged by the government.

Despite worsening housing market conditions, Fannie Mae is "still setting aside way more for future losses than they're absorbing today," Vogel said.

Others aren't so sure. Barclays Capital analyst Rajiv Setia said the government's arrangement with Fannie and Freddie "may need to be amended" next year. Many analysts consider Freddie Mac, which is expected to report earnings later this week, to be in worse financial shape.

The real estate industry is also waiting to see if the government, under President-elect Barack Obama, will use Fannie and Freddie to help alleviate the foreclosure crisis by aggressively modifying or refinancing loans. Together, Fannie Mae and Freddie Mac own or guarantee around half of U.S. home loans.

"They're no longer being run for profit," said Fox-Pitt Kelton analyst Howard Shapiro.

Fannie Mae posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of a tax asset and $9.2 billion in expenses resulting from falling home prices and surging defaults.

Fannie Mae, which has bled $33.5 billion in red ink so far this year, is now run by CEO Herbert Allison, formerly chairman and chief executive of retirement fund manager TIAA-CREF. Fannie Mae's former top executive, Daniel Mudd, was ousted as part of the government takeover.

Fannie and Freddie are now facing a federal grand jury investigation into their accounting practices.

Last month, Fannie Mae said it would change its accounting for its deferred-tax assets, which can result from operating losses and be used to offset taxes on future profits. But Fannie may not have any profits for a long time to come, the company said.

The U.S. housing market is continuing to decline. Fannie Mae posted $9.2 billion in credit losses, up from $1.2 billion in the quarter a year earlier. Delinquent loans rose to 1.7 percent of all single-family loans - double the level last fall.

Fannie Mae owned more than 67,500 foreclosed properties at the end of September, up 25 percent from the end of June.

Shares fell 2 cents to 72 cents in Monday trading.