From: Reuters
Published May 7, 2008 09:20 AM

Markets see Fannie Mae profits, OFHEO says: report

BOSTON (Reuters) - Financial markets believe Fannie Mae, the biggest provider of funding for U.S. home loans, can reverse losses by applying fresh capital of $6 billion toward profitable investments, the company's federal regulator told CNBC on Wednesday.

Fannie Mae <FNM.N> shares rose 8.9 percent on Tuesday after the company reported its third straight quarterly loss, and said it would raise capital to cushion itself from losses and maintain its ability to support the mortgage market.

"I think the marketplace thinks the money will be put forth profitably," James Lockhart, director of the Office of Federal Housing Enterprise Oversight, said in the CNBC interview.

OFHEO has eased capital requirements on Fannie Mae and Freddie Mac under condition that the two government-sponsored enterprises would also raise money.


With Wall Street mortgage securities programs frozen, the two GSEs have seen their share of the mortgage bond market surge to more than 90 percent this year from less than 45 percent in 2006. Fannie Mae and Freddie Mac have tightened loan standards and boosted fees, increasing the quality of their investments and obligations.

Lower market values on investments and guarantees made by Fannie Mae during the housing boom have added to their losses. Some mortgage securities owned have been downgraded, but Fannie Mae believes they are protected from losses since they intend to hold them to maturity, Lockhart said.

(Reporting by Al Yoon, Editing by Chizu Nomiyama,)

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