GSEs Report Net Losses for 2Q11

Washington, D.C.—The two GSEs are reporting net losses in the second quarter of 2011.

Fannie Mae reported a net loss of $2.9 billion in the second quarter of 2011, compared to a net loss of $6.5 billion in the first quarter of the year. The company’s loss reflected $6.1 billion in credit-related expenses, substantially all of which were related to the company’s legacy (pre-2009) businesses. The loss in the second quarter of 2011 reflects the continued weakness in the housing and mortgage markets

Fannie Mae expects its credit-related expenses to remain elevated in 2011 due to these factors.

At the same time, Freddie Mac reported a net loss of $2.1 billion for the quarter, compared to net income of $676 million in the first quarter. The company also reported a total comprehensive loss of $1.1 billion in the second quarter of 2011, compared to total comprehensive income of $2.7 billion in the first quarter of 2011.

The reported net loss reflects net interest income of $4.6 billion, offset by derivative losses of $3.8 billion, provision for credit losses of $2.5 billion and net security impairments of $352 million. The total comprehensive loss of $1.1 billion consists of net loss of $2.1 billion, partially offset by total other comprehensive income of $1 billion.

According to the report, the net worth deficit of $1.5 billion was due to several contributing factors, including the $1.6 billion quarterly dividend payment to Treasury and the total comprehensive loss for the second quarter. To eliminate this deficit, FHFA will submit a $1.5 billion draw request to Treasury, which will increase the aggregate liquidation preference of the senior preferred stock to $66.2 billion.