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Fannie Stock Slides As Questions Arise Over Accounting
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"Wall Street is fear and greed, and this is fear," Petrou said. "Nobody wants to be the last out the door, and that's a piece of what's going on here."
Fannie Mae owns or guarantees about one-fifth of the $11.5 trillion U.S. residential mortgage market.
Congress created Fannie Mae and its competitor, Freddie Mac, to increase mortgage financing by buying loans from lenders. The companies profit by holding mortgages and mortgage bonds as investments and by charging fees to guarantee and package loans as securities.
The company has been under a cloud since 2004, when regulators accused it of improper accounting that ultimately led to a $6.3 billion reduction in previously reported profits and the retirement of chairman and chief executive Franklin D. Raines. The company agreed to limits on the size of its investment portfolio until it cleaned up its accounting problems and returned to timely financial reporting.
Fannie's stock price soared over the summer on expectations that it could parlay the meltdown in the mortgage markets into big financial gains by persuading the government to ease restraints on the volume and size of mortgages it can purchase.
Instead, Fannie Mae and its competitor Freddie Mac now find themselves constrained by the need to maintain required levels of capital to cushion against financial reversals, as the value of some mortgage-related holdings declines, and its losses from loan defaults and foreclosures have been rising.
The conference call fueled concerns that current reserves don't reflect future needs. Fannie Mae told analysts that, under accounting rules, it must reserve based on current conditions, not expected conditions in a worsening market.
Staff researcher Richard Drezen contributed to this report.
