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Fannie Mae (FNM) Earnings Ugly

Fannie Mae (FNM) reports Q4:  -$3.80 v -$1.24est.  2007 Charge-offs of $407M v $206M Y/Y

- Estimate that home prices declined by 3.1% on a national basis during 2007.

- The credit performance of subprime and Alt-A loans, as well as other higher risk loans, has deteriorated sharply during the past year, and even the prime conventional portion of the mortgage market has seen signs of credit distress. 

- Charge-offs, net of recoveries and foreclosed property expense, as a percentage of the average guaranty book of business during the period. Effective January 1, 2007, we have excluded from our credit loss ratio any initial losses recorded pursuant to SOP 03-3 on loans purchased from trusts when the purchase price of seriously delinquent loans that we purchase from Fannie Mae MBS trusts exceeds the fair value of the loans at the time of purchase.

- Fannie states it "expects housing market weakness to continue in 2008, leading to increased delinquencies, defaults and foreclosures on mortgage loans, and slower growth in U.S. residential mortgage debt outstanding. Based on our current market outlook, we expect that our credit losses and credit-related expenses will continue to increase during 2008, as will our guaranty fee income.,

- Expects reducing the size of our investment portfolio through liquidations or by selling assets; issuing preferred, convertible preferred or common stock; reducing or eliminating our common stock dividend; forgoing purchase and guaranty opportunities; and changing our current business practices to reduce our losses and expenses in order to meet regulatory capital requirements.