Fannie Mae 3Q Loss Widens On $21.4B Write-Down; Shares Rise

Fannie Mae's (FNM) third-quarter net loss widened on a $21.4 billion write-down of deferred tax assets it would have used to offset taxes on future profits, showing that the red ink at the government-sponsored provider of funds for home mortgages isn't expected to end soon.

The company announced two weeks ago it might write down most, if not all, of its deferred tax assets. They are supposed to be written down if a company believes it won't be able to generate enough taxable profit soon enough to use all those credits before they expire and become worthless.

Fannie posted a net loss of $29 billion, or $13 a share, compared with a prior-year net loss of $1.4 billion, or $1.56 a share. Besides the tax asset write-down, the latest quarter was also hurt by investment losses and increased credit costs.

Net revenue jumped 53% to $4.06 billion as net interest income more than doubled and guaranty-fee income rose 20%.

Analysts surveyed by Thomson Reuters expected a loss of $1.60 on revenue of $3.26 billion.

Shares rose 10.8% to 82 cents in recent premarket trading.

Fannie's combined loss reserves as of Sept. 30 were $15.61 billion, up from $3.39 billion as of Dec. 31. The company noted it has experienced "significant deterioration" of its access to the unsecured debt market and reduced demand for its debt securities amid market disruptions and concern about its capital position.

As of Sept. 30, the serious delinquency rate was 1.72%, up from 0.64% a year ago.

In September, the U.S. government seized both Fannie and Freddie Mac (FRE) as they have suffered mightily as the housing bubble burst, leaving them holding the bag when mortgages they backed soured. Before the government takeover, Fannie had announced a management shakeup, naming a new financial chief and chief risk officer as it sought to restore investor confidence in its capital plans.

Fannie affirmed its forecast for full-year credit loss ratio of 0.23% to 0.26% and anticipates the ratio will increase further in 2009 compared with 2008. It continues to expect home price declines of 7% to 9% in 2008 and said the declines would likely be at the top end of that range.

-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089; kerry.grace@dowjones.com