By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, November 11, 2008

Fannie Mae, the District-based mortgage finance giant taken over by the government in September, yesterday reported a loss of $29 billion ($13 a share). That compared with a loss of $1.4 billion ($1.56) in the corresponding period in 2007.

Most of the loss -- $21.4 billion -- stemmed from writing down the value of deferred tax assets, which are credits that can be applied against income taxes. The company said it could not count those credits anymore because it is unlikely to make a profit in the foreseeable future.

Another hit -- $9.2 billion -- reflected the falling value of mortgages and mortgage bonds that Fannie Mae owns or insures. The company said it added $6.7 billion to its reserves to cover future mortgage-related losses.

Nearly half of all loans going bad were attributed to a type of home loan, known as Alt-A, that often required no proof of income or employment. Those mortgages blossomed during the housing boom, and Fannie Mae pushed to expand its ownership and guarantees of such loans.

The losses sliced the company's overall value -- assets minus liabilities -- from $41.4 billion on June 30 to $9.4 billion on Sept. 30.

The company estimated that home prices this year would decline about 9 percent.

"If current trends in the housing and financial markets continue or worsen, and we have a significant net loss in the fourth quarter of 2008, we may have a negative" value at the end of the year, the company said. That would prompt a government cash infusion.