Bad Paper

Mortgage giant Fannie Mae reported a first quarter loss of $2.19 billion as the fallout from the mortgage meltdown continues. They also cut the dividend and announced plans to raise an additional $6 billion in capital.

Ajay Rajadhyaksha, head of fixed-income strategy for Barclays Capital, was quoted in an article in Bloomberg stating ‘They are now starting to realize the fact that their credit losses will be considerably higher than they were in 2007. Things in the housing and credit markets are deteriorating very fast.”

Fannie’s regulator, the Office of Federal Housing Enterprise Oversight said it
will lower requirements for surplus capital to 15 percent from 20
percent once the $6 billion is raised. This would enable Fannie Mae to buy more
mortgages. The limit could be reduced to 10 percent by September if
Fannie Mae continues to retain excess capital.