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Mortgage giants post big losses for quarter, will cut dividends
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More from BusinessFannie Mae and Freddie Mac reported second-quarter losses that mean a significant hit to the mortgage companies and could have a lasting effect on the mortgage market.
Both companies announced quarterly loss three times Wall Street expectations during the week. Fannie Mae lost $2.3 billion for the quarter; Freddie Mac lost $2.5 billion.
Fannie Mae reported it was cutting its dividend to 5 cents from 35 cents a share and eliminating loans for borrowers who had solid credit scores but little proof of income or small or no down payments. The company also is raising its mortgage fees, which will be passed on to borrowers as higher interest rates or closing costs.
Freddie Mac made a similar announcement that it expects to cut its dividend in the current quarter to 5 cents or less from 25 cents a share. It was not known if Freddie Mac would follow Fannie Mae in eliminating those loans to risky borrowers.
The companies, on which much of the U.S. mortgage market is now relying to pull through the current credit crisis, were hit hard by Alt-A loans to those lenders who didn't have much proof of income or sizeable down payments. While Alt-A loans make up about 10 percent of Freddie Mac's portfolio, they accounted for more than half of the company's credit losses in the second quarter.
The worry in the industry is the efforts to avoid those kinds of risky loans in the future will lead to higher mortgage rates, making it harder for people to afford a mortgage or refinance and could spur even more foreclosures. Investors worry the companies will need to rely on government aid.
Fannie Mae and Freddie Mac are the biggest buyers of U.S. home loans from banks and other lenders and own or guarantee nearly half of the outstanding U.S. mortgage debt.
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