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Fannie Mae Reports Home Prices will keep falling

2008
09.05

Reprinted from Fannie Mae:

Fannie Mae CEO: Home prices will keep falling

Mortgage company CEO says the end is in sight, but home prices

could plummet before the market recovers.

May 20, 2008: 2:08 PM EDT

WASHINGTON (AP) — Fannie Mae’s CEO told shareholders Tuesday that the housing market is “about halfway through” its crisis and home prices could fall as much as 25% before the worst is over.

The largest U.S. buyer and guarantor of home mortgages will be able to weather the downturn and expand its business, Fannie Mae’s president and CEO, Daniel Mudd, said as he and other top executives faced shareholders at an annual meeting in New Orleans.

As Mudd spoke in New Orleans, a key Senate panel approved a $300 billion homeowner rescue plan to provide cheaper, government-backed mortgages to as many as 500,000 struggling borrowers. The legislation also includes tougher federal oversight of Fannie Mae and its smaller government-sponsored sibling, Freddie Mac (FRE, Fortune 500).

Under a key concession to Republicans for backing the plan, the rescue would be financed with a share of the two companies’ profits.

Fannie (FNM, Fortune 500) shares declined $1.20, or about 4%, to $27.75 in early afternoon trading Tuesday. Freddie’s stock slipped 50 cents, or around 2%, to $26.51.

After posting a first-quarter loss of $2.2 billion amid rising mortgage defaults, Fannie Mae earlier this month cut its dividend and raised $7 billion in new capital by issuing new shares to shore up its finances. Federal regulators loosened the capital requirements of Fannie and Freddie, to enable them to play a bigger role to bolster the housing market.

Mudd said Tuesday the company expects U.S. home prices to fall as much as 25% from their highs of mid-2005. Losses for Washington-based Fannie Mae from defaulted mortgages are expected to worsen next year.

The housing market is in its most severe slump since the Depression, Mudd said, a crisis “which we’re likely to be about halfway through right now.”

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