Following in the footsteps of Freddie Mac, which reported quarterly losses on Wednesday, Fannie Mae today announced a net loss of $2.3 billion, or $2.54 per diluted share, in 2008’s second quarter.

It represents Fannie’s fourth straight quarterly loss. The Washington, D.C.-based mortgage finance firm last achieved positive earnings for the quarter ending June 30, 2007, when it reported $1.9 billion in net income.

The problem, of course, is the housing market. Last quarter, Fannie’s credit-related expenses, which includes credit losses as well as foreclosed property costs, rose significantly, to $5.3 billion. Other numerical markers of trouble increased as well. Fannie’s delinquency and default rates moved upward, as did the company’s charge-off costs and write-off percentages for bad loans.

Fannie noted particularly bad performance for its Alt-A loans, a higher-risk category of mortgages that traditionally has required less documentation from borrowers. “As of June 30, 2008, our Alt-A mortgage loans represented approximately 11 percent of our total mortgage book of business and 50 percent of our second-quarter credit losses,” the company said.

Unfortunately for builders and others, weak spots like these appeared to get even worse after the quarter ended. “In July, credit performance continued to deteriorate, and we recorded charge-offs that were higher than we had experienced in any month during the second quarter and higher than we had previously forecasted, driven by higher defaults and higher loan loss severities in markets most affected by the steep home price declines,” Fannie’s statement said.

In response, the company plans to reduce costs, raise fees, tighten underwriting standards, review defaulted loans for lessons and mistakes, and expand its foreclosed property division by opening offices in Florida and California, two states struggling with high rates and numbers of foreclosures.  

“The housing market correction and the decline in home prices are unlike any previous cycle experienced by Fannie Mae,” said Fannie CEO and president Daniel H. Mudd. “We are taking the necessary steps to meet the needs of our lending partners, provide liquidity to the market, and channel global capital into housing. The housing market will inevitably stabilize and recover, and we are working to make sure Fannie Mae will be at the center of that recovery, for our shareholders and the market we serve.”

Alison Rice is senior editor, online, at BUILDER magazine.

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