Mortgage repurchaser Fannie Mae said Tuesday it would issue $7 billion in preferred stock to raise capital and reduce the company’s quarterly common stock dividend beginning in the first quarter of 2008.
Fannie Mae on Nov. 9 reported $1.4 billion in third-quarter losses, but said it had $41.7 billion in core capital on hand, $2.3 billion above minimum requirements set by the Office of Federal Housing Enterprise Oversight (OFHEO).
In a press release Tuesday, Fannie Mae officials said the preferred stock issue — along with a smaller $500 million issue last month — will help the company maintain a solid capital position through 2008.
The additional capital will “strengthen Fannie Mae’s ability to manage the effects of ongoing volatility in the mortgage credit markets, continue to grow its securitization activities, and pursue attractive investment opportunities,” the company said.
But Fannie Mae officials warned that worsening housing and credit markets, continued losses on guaranty contracts, substantial credit-related expenses, and losses on derivatives and securities “will adversely affect in a material way the company’s fourth quarter 2007 results.”
In addition, the company said, conditions in the housing and credit markets, including expected further declines in home prices, “will negatively affect the company’s financial condition, and results of operations in 2008.”
OFHEO instituted a 30 percent capital surplus requirement for Fannie Mae and its sister government-chartered mortgage financer, Freddie Mac, after management and accounting scandals forced the companies to restate earnings.
Freddie Mac said last month that it would issue $6 billion in preferred stock and cut fourth-quarter dividends to shareholders in half, to 25 cents per share, after bumping up against OFHEO’s surplus capital requirements (see Inman News story).
Capital requirement forced Freddie Mac to sell $45 billion in loans in September and October, the company said in reporting a $2 billion third quarter loss. Freddie Mac said its regulatory core capital was $34.6 billion as of Sept. 30, $600 million over the minimum set by OFHEO.
Fannie Mae, by contrast, recently reported that it expanded its loan purchase, guarantee and securitization business at an annual rate of 20 percent in October, a rate of growth not seen since May.