Fannie Mae, which raised $7 billion through the sale of preferred stock last week and cut its dividend to bolster its capital, is unlikely to go back to the market even if the credit markets fail to rebound by the end of next year, Fannie Chief Executive Daniel Mudd said Tuesday.
"If circumstances were worse than expected" at the end of 2008, Fannie can sell its liquid investment portfolio, further raise fees on new mortgage loans and guarantees, and take other operational measures, Mudd said at a conference sponsored by Goldman Sachs Group Inc. It would not make sense to approach the market again in a time of stress and volatility, he said.
Fannie Mae, which posted a loss of $1.4 billion in the third quarter, was conservative in determining the $7 billion preferred issue, giving it what it expects will be a comfortable cushion to get through the next year, Mudd said.
But "we are not immune to the correction," he said, noting that serious delinquencies in its portfolio of loans bought from mortgage originators will rise next year.
The correction in the U.S. housing market is unlikely to turn to recovery until late 2009, Mudd said, with housing prices and starts remaining weak through most of that year. Forecasting, he added, is fraught with peril.
Shares of Fannie Mae, down a bit more than 1% when Mudd completed most of his presentation, fell further after the Federal Reserve said it cut the discount and Fed funds rate by 25 basis points. Fannie Mae shares were off $1.83, or 5%, at $35.08 in recent trading.
