Fannie Ties 3Q Losses to Alt-A Loans

Over 25% of Fannie Mae's credit losses in the third quarter came from its book of guaranteed alternative-A mortgages, according to the company's president and chief executive officer, Daniel Mudd.The giant secondary-market agency has guarantees on $324.7 billion in alt-A mortgage-backed securities, which had a serious delinquency rate of 1.36% as of Sept. 30. "Alt-A drove about 28% of Fannie Mae's total credit losses in the most recent period," Mr. Mudd told a Goldman Sachs investor conference. "So this book gets an awful lot of attention." Only 40% of its guaranteed alt-A loans have credit enhancements, which suggests many are piggy-backed with second liens. The weighted average credit score is 719. Fannie took $1.2 billion in credit-related expenses in the third quarter, including a $670 provision for credit losses on delinquent loans it purchased out of Fannie-guaranteed MBS. The government-sponsored enterprise can be found online at http://www.fanniemae.com.