Fannie Mae cuts dividend after losing $2.3 billion
Mortgage company’s shares fall 9 percent
WASHINGTON – Fannie Mae is making bold cutbacks that will send shock waves through the mortgage market, after posting a quarterly loss Friday that was three times larger than Wall Street expected.
To slow its financial decline, the mortgage finance giant slashed its dividend to 5 cents a share from 35 cents a share and said it will eliminate loans for borrowers with 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.
With Fannie Mae and its sibling company Freddie Mac becoming more risk-averse, fears are building that mortgage rates will keep climbing, making it harder for people to afford a mortgage or refinance their home, and spur even more foreclosures.
“We are already in that spiral,” said Chris Mayer, real estate professor at Columbia Business School.
Volatility and disruptions in the capital markets worsened in July. And though Fannie Mae’s losses should still peak this year, said chief executive Daniel Mudd, adding that he couldn’t predict how long the housing recession will last or how low prices will fall.
“The housing market has returned to earth fast and hard,” Mudd said.
Washington-based Fannie Mae company lost $2.3 billion, or $2.54 a share, for the quarter that ended June 30. The loss, the company’s fourth-consecutive quarter of red ink, compares with profit of $1.95 billion, or $1.86 a share, in the period last year.
Disappointed stockholders sent Fannie Mae’s shares down 9.1 percent, or 90 cents, to $9.05 Friday.
Investors continue to worry that Fannie and Freddie will be overwhelmed by losses and require government aid. Fannie Mae and Freddie Mac are the biggest buyers of U.S. home loans from banks and other lenders. Together they own or guarantee nearly half of outstanding U.S. mortgage debt.
Under the housing bill signed by President Bush last week, the government may boost lines of credit to the companies or buy their stock.