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Fannie Swings To 4Q Loss On Rise In Credit-Related Expenses

02/29/2012 | 02:36pm US/Eastern
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--Fannie Mae will request another $4.6 billion in U.S. government aid

--Fight with Bank of America may lead to additional aid requests

--Fannie Mae says it ended agreement with Bank of America in January

(Updated with annual-report comment from Bank of America in paragraph 6 and details about fight over repurchase requests throughout.)

By Andrew R. Johnson

Of

Fannie Mae (>> Federal National Mortgage Association) will request another $4.6 billion in U.S. government aid after posting a $2.41 billion loss in the fourth quarter, the mortgage-finance company said Wednesday.

The company also warned it could have to request additional aid stemming from an escalating battle with Bank of America Corp. (>> Bank of America Corp) over mortgage-repurchase requests for faulty loans.

Bank of America said last week in a regulatory filing it had stopped selling most mortgages to Fannie Mae because of a "mutual" end to an agreement between the two companies. But Fannie Mae said Wednesday it decided not to renew the agreement at the end of January after the bank resisted requests to repurchase soured loans.

"If Fannie Mae collects less than the amount it expects from Bank of America, Fannie Mae may be required to seek additional funds from Treasury," Fannie Mae said.

A spokesman for Bank of America on Wednesday referred to the bank's filing when contacted for comment.

The "nonrenewal" of the agreement between Bank of America and Fannie Mae was partly the result of "our ongoing differences with [Fannie Mae]" over repurchase claims, the Charlotte, N.C., bank said in its annual report last week.

The volume of Fannie Mae's outstanding repurchase requests with Bank of America "increased substantially" as a result of the bank slowing its loan buybacks, according to Fannie Mae.

Bank of America accounted for the largest portion, about 52%, of Fannie Mae's outstanding repurchase requests as of Dec. 31. The other banks that accounted for large amounts of outstanding requests are J.P. Morgan Chase & Co. (>> JPMorgan Chase & Co.), Citigroup Inc. (>> Citigroup Inc.), Wells Fargo & Co. (>> Wells Fargo & Company) and SunTrust Banks Inc. (>> SunTrust Banks, Inc.).

Bank of America can still deliver loans to Fannie Mae under certain refinancing programs. Fannie Mae said it doesn't expect the issue to have a material impact on its results.

The mortgage-finance company blamed its quarterly loss primarily on pre-2009 loans and declines in home prices, which pushed up the company's credit-related expenses.

In the fourth quarter of 2010, Fannie Mae posted a slight profit to snap a streak of 13 straight quarterly losses, though the company resumed its place in the red in the following quarter and every one since.

Fannie Mae and sister company Freddie Mac (>> Federal Home Loan Mortgage Corp) don't lend to consumers. Rather, they buy and guarantee home loans that meet their standards and package them into securities.

The two firms were taken over by the government in 2008 at the height of the financial crisis. The companies' shares began trading on the over-the-counter market in 2010 after regulators ordered them to delist from the New York Stock Exchange because they no longer met listing standards.

Including its most recent request from the U.S. Treasury Department, Fannie Mae has borrowed more than $116 billion from taxpayers and paid back $19.6 billion in dividends. Freddie Mac, which hasn't yet reported its latest quarter of earnings, has received more than $71 billion in government aid and paid back about $15 billion as of the third quarter.

The net cost to taxpayers for the rescues of both companies stands at more than $152 billion.

Fannie's annual net loss of $16.9 billion exceeded its year-earlier loss of $14 billion largely because falling interest rates triggered write-downs of certain derivative investments that are used to hedge against swings in interest rates.

Company officials said lower rates of mortgage delinquency had allowed the company to set aside less cash for loan losses during the second half of 2011. "That's a good indication that we believe we now have most of the losses already recognized," said Susan McFarland, Fannie's chief financial officer, in an interview.

For the fourth quarter, Fannie posted a loss of $2.41 billion, compared with a year-earlier profit of $73 million. Net revenue declined 7.3% to $4.53 billion.

The firm's credit-related expenses totaled $5.51 billion in the fourth quarter, compared with $4.32 billion a year earlier and $4.88 billion in the third quarter.

-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; andrew.r.johnson@dowjones.com

--Mia Lamar, Nick Timiraos and Matthias Rieker contributed to this article.

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