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Fannie Mae Reports $3.56 Billion Loss
Fannie Mae chief executive Daniel H. Mudd said he sees no need to further augment the company's capital reserve.
(By Carol T. Powers -- Bloomberg News)
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In recent Senate testimony, Lockhart said he would be "much more comfortable" easing the capital requirement if Congress passed long-stalled legislation to give his agency more regulatory power.
The capital requirement is shaping up as the focus of a new battle over the government-chartered companies. Losses like those Fannie Mae reported yesterday bolster OFHEO's rationale for requiring extra capital, but weakness in the housing market adds pressure for the regulator to let Fannie Mae and Freddie Mac do more.
Douglas A. Dachille, chief executive of First Principles Capital Management, said neither lifting the portfolio caps nor easing the capital requirement would make much difference to borrowers. In a memo to a client, he compared those steps to "handing out air freshener to homeowners who live next to a landfill."
In a report to clients, Morgan Stanley stock analysts said the risk of a capital shortfall at Fannie Mae is greater than it previously appeared.
Mudd said that he foresees no need to raise more capital. Protecting Fannie Mae's current capital is the company's top priority, he said.
He acknowledged that responding to the kind of crisis that now grips the housing market "is something we were chartered to do," but he said that was a lower priority.
As part of its effort to conserve capital, Fannie Mae is shifting its emphasis from investing in mortgages directly to the less capital-intensive business of guaranteeing them for other investors. One silver lining for Fannie Mae, if not for lenders and borrowers, is that the company is raising the fees it charges to guarantee loans, effective next month.
Fannie Mae shares rose 30 cents yesterday, to $27.27, far off their high for the past year of $70.57.
Staff researcher Richard Drezen contributed to this report.
