Fannie Mae loss doubles amid defaults

Fannie Mae, the biggest source of money for U.S. home loans, said Friday that its third-quarter loss more than doubled to $1.39 billion as a deepening housing slump increased mortgage delinquencies.

The net loss was caused by a $2.24-billion decline in the value of derivative contracts and $1.2 billion in credit losses among the $2.7 trillion of mortgage assets Fannie Mae owns or guarantees, the Washington-based company said in a Securities and Exchange Commission filing.

Chief Executive Daniel Mudd said the housing market would worsen, with the average price of homes falling 2% this year and 4% in 2008.

Fannie Mae fell 80 cents to $49.

Fannie Mae, which owns or guarantees about 20% of the home-mortgage market, also gave results for the first and second quarters, bringing it up to date on its earnings reports. A return to regular filing is a step toward shedding restrictions imposed by the Office of Federal Housing Enterprise Oversight after the company began revealing $6.3 billion in accounting misstatements.

Fannie Mae is also facing new scrutiny over the possibility that mortgages it bought may have been tainted by inflated home appraisals. New York Atty. Gen. Andrew Cuomo said Friday that he subpoenaed Fannie Mae and Freddie Mac as part of a probe into “widespread” collusion between lenders and appraisers.

Net income for the first three quarters of 2007 dropped 57% to $1.5 billion, or $1.17 a share, from $3.5 billion, or $3.16, a year earlier, the company said.

Credit-related losses in that period surged by $1.6 billion to $2 billion, while losses on securities guaranteed by Fannie Mae rose $857 million to $1 billion, the company said. Both setbacks stem “from home price weakness and credit market disruption.”

The third-quarter net loss amounted to $1.56 a share and compared with a net loss in the year-earlier period of $629 million, or 79 cents a share.