Fannie Takes $2.3B Loss; Nixes Alt-A Purchases

Fannie Mae has reported a $2.3 billion loss for the second quarter, up slightly from $2.2 billion in the first quarter, and the mortgage giant said it will cut its dividend to 5 cents and stop purchasing alternative-A mortgages later this year. Credit-related expenses rose to $5.3 billion from $3.2 billion in the first quarter, including $3.7 billion in loan loss reserves, Fannie said. Loan chargeoffs jumped to $942 million from $630 million in the first quarter. The deterioration in credit performance of its $310 billion in alt-A loans was "especially pronounced" and was responsible for 50% of the credit losses on its mortgage guarantee business, Fannie Mae reported. The government-sponsored enterprise said it will stop purchasing alt-A loans effective Jan. 1. The company also warned that it is "ramping up" its default reviews to pursue recoveries from alt-A lenders. Fannie Mae can be found on the Web at http://www.fanniemae.com.