Fannie Mae 2006 Earnings Down 35 Percent

Fannie Mae filed its delayed annual report for 2006 and said its profit for the year fell 35 percent from 2005. The District-based mortgage finance company blamed the decline on the slumping U.S. housing market and rising internal administrative costs. (See Fannie Mae's statement.)

"Looking back, 2006 was a rebuilding year, with the completion of the restatement and the remediation of many operational, regulatory and accounting issues," Daniel H. Mudd, chief executive of Fannie Mae, said in a statement. "But it was also a challenging year for the housing market and for our business."

The company is still recovering from an accounting scandal that forced the ouster of its top executives in 2004 and has not issued timely quarterly results in three years. In June, Fannie Mae said it hopes to be current with its financial reporting by early next year. Last year, it spent about $850 million to deal with the legal and regulatory fallout of its accounting problems.

Fannie Mae was created by the federal government along with McLean-based Freddie Mac to make home ownership more accessible by providing financial backing to the mortgage industry. The two companies invest in mortgages and package them for resale to investors.

Recent turmoil in the mortgage industry and broader credit markets has turned the spotlight again on Fannie Mae and Freddie Mac. The companies last week asked their regulator for permission to lift restrictions on the amount of investments they can hold in their portfolios, arguing they could help struggling lenders and home buyers by picking up the slack in the credit markets.

On Friday, the Office of Federal Housing Enterprise Oversight denied that request, saying that the companies had other means available to add liquidity to the market. Today, Sen. Charles Schumer (D - N.Y.) said he would introduce legislation to temporarily lift that investment limit. (See Schumer's statement.)

Fannie Mae said its earnings outlook for the current year would be affected by slowing home sales and a challenging credit market. The company said it expected to see business increasing this year on rising demand for the traditional loan products it backs.

"While we do expect our credit loss ratio to increase in 2007 from continuing strain in the housing market, we believe Fannie Mae is well positioned to weather
the turmoil in the mortgage market," Mudd said.

By Mike Shepard  |  August 16, 2007; 2:26 PM ET  | Category:  Fannie Mae , Finance
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