Fannie Mae seeks $4.6 billion in aid after fourth-quarter loss

WASHINGTON – Fannie Mae, the biggest source of money for U.S. home loans, on Wednesday said it would seek $4.6 billion in additional federal aid after reporting a fourth-quarter loss.

The government-controlled mortgage finance firm earlier Wednesday posted a loss of $2.4 billion for the quarter ended Dec. 31. That pushed Fannie Mae’s loss for 2011 to $16.9 billion from $14.0 billion a year earlier, the company said.

Fannie Mae’s pre-2009 book of loans and declining home prices continues to make it difficult for the firm to turn a profit.

“We think that we have reserved for and recognized substantially all of the credit losses associated with the legacy book,” said Susan McFarland, executive vice president and chief financial officer in an interview.

The government seized Fannie Mae and Freddie Mac, which together back roughly half of all outstanding U.S. mortgages, in September 2008 as losses from failing home loans threatened the agencies’ solvency.

Fannie Mae has borrowed more than $116 billion from the government and paid almost $20 billion in the form of dividends.

“We’re very focused on returning to profitability so we don’t have to draw (from Treasury) to cover operating losses,” said McFarland.

Freddie Mac, which hasn’t yet reported fourth-quarter results, has received more than $71 billion in government aid and paid back about $15 billion as of the third quarter.

Fannie Mae’s credit-related expenses were $5.5 billion in the fourth quarter, compared with $4.3 billion a year earlier and $4.9 billion in the third quarter.

Fannie Mae and Freddie Mac don’t lend to consumers. Rather, they buy and insure mortgages from banks to allow lenders to make more loans.

In the fourth quarter, the firm’s provision for credit losses and foreclosed-property expenses rose to $4.7 billion from $4.5 billion in the third quarter. Its provision for loan losses narrowed to $18.7 billion from $23.6 billion a year ago.

Fortress Investment says CEO Mudd takes leave of absence

NEW YORK ― Daniel Mudd, the embattled former chief executive of mortgage financing company Fannie Mae, is taking a leave of absence from him current job as head of hedge fund Fortress Investment Group, the company said on Wednesday.

Last week the Securities and Exchange Commission charged Mudd and other top executives at Fannie Mae and Freddie Mac with understating the lenders’ exposure to risky subprime mortgages.

Now he has announced plans to step down for the moment and the company tapped a co-founder, Randal Nardone, to take over.

“I have requested a leave of absence from my position as chief executive officer to ensure that any time or attention I need to focus on matters outside of Fortress will not affect the business or operations of the company, Mudd said in a statement.

Mudd, who had been forced out at Fannie Mae, said last week that he would fight the SEC charges, and Fortress said the matter was not having an impact on Fortress’s operations.

But its share price, already under pressure all year, sank even lower this week as investors worried about his future and outside analysts speculated that Mudd’s presence might become a further liability for the company.

In mid-morning trading on Wednesday the shares were 2 percent lower at $3.30, leaving them down 41 percent for the year. Rival Och Ziff, another one of the small number of publicly traded hedge funds, has lost more than 47 percent this year.

Mudd, who came to New York-based Fortress in 2009 with a mandate to develop the company’s global growth strategy after co-founder Wes Edens had run the company since its public stock listing in 2007, said it was his choice to step back. He did not say how long he would be gone and the company turned to another co-founder, Nardone, a trained lawyer, to run it.

“We are grateful to Dan for his service and leadership over the past two and a half years and support his decision to take a leave of absence at this point in time,” said Nardone in a company statement. “We look forward to Dan`s return in the hope that matters are resolved favorably and expeditiously.”

Regulators sue former top executives at Fannie, Freddie

NEW YORK ― Six former top executives at Fannie Mae and Freddie Mac were sued by U.S. regulators, who said they misled investors over the mortgage finance companies’ exposure to risky home loans in the lead-up to the 2008 financial crisis.

The U.S. Securities and Exchange Commission brought civil fraud charges on Friday against former Fannie Mae CEO Daniel Mudd, former Freddie Mac CEO Richard Syron and four other one-time high-level executives at the companies. Regulators say the executives made it appear that their companies had far less exposure to riskier mortgages in their loan portfolios than in fact existed.

Freddie Mac and Fannie Mae have been propped up by $169 billion in federal aid since they were rescued by the government in 2008. Both companies were chartered by Congress to foster a liquid mortgage market.

The SEC said both firms have agreed to cooperate with the agency and have agreed to admit responsibility for the alleged conduct, without agreeing or denying that they are liable. The firms have also entered into non-prosecution agreements with the agency, the SEC said.

Attorneys for Mudd and Syron did not immediately respond to requests for comment.

Mudd, 53, was CEO of Fannie Mae from June 2005 until September 2008, when the FHFA put it into conservatorship. Mudd is now chief executive of asset manager Fortress Investment Group.

Syron, 68, was chairman and CEO of Freddie Mac from December 2003 until September 2008 when the FHFA stepped in.

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, director of the SEC’s Enforcement Division, in a statement announcing the charges.

“These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books,” Khuzami said.

The civil charges were brought in two separate lawsuits filed in U.S. District Court in Manhattan. The SEC accused the six former executives of knowingly approving false statements to investors.

The regulator is asking the court to order the former officers to pay back alleged illegal profits, as well to impose penalties against them, court documents showed. The documents did not specify what amount the SEC would be seeking.

Fannie Mae, Freddie Mac executives defend pay packages

WASHINGTON ― Top executives at Fannie Mae and Freddie Mac on Wednesday defended their companies’ pay practices which have drawn opposition after it was disclosed the government-controlled firms were paying out nearly $13 million in executive bonuses.

Michael Williams, chief executive of Fannie Mae, and Charles Haldeman, Freddie Mac’s chief executive, both argued the compensation structures at the mortgage finance firms were warranted to retain and attract qualified staff.

A bill to block the pay packages was approved by the House Financial Services Committee on Tuesday in a 52-4 vote. The full House must still vote on the measure. A similar bill has been introduced in the Senate.

The two loss-making firms have been propped up by about $169 billion in federal aid since they were rescued by the government in 2008.

In testimony before a U.S. House of Representatives committee, the firms’ executives said cutting compensation for workers at Fannie Mae and Freddie Mac would be disruptive and limit their ability to attract skilled management.”We need to compensate our executives and employees to ensure that we have and keep the leadership we need to continue our progress,” Williams told the House Oversight Committee.Republicans and Democrats in both the House and Senate have expressed chagrin that the two companies were paying out $12.79 million in bonuses for 10 executives.

The government took control of the firms, the two largest sources of funding for U.S. mortgages, as mounting losses threatened their solvency during the financial crisis.

Williams said that without legislative direction from Congress on the future of the two government-sponsored enterprises, it was “difficult to attract and retain employees with highly specialized skills, expertise and experience.”

Democrats and Republicans largely agree the firms will eventually have to be shuttered, but lawmakers are moving cautiously given the central role the companies play in the U.S. housing finance system and the battered state of the housing sector.

The chief executives and the companies’ regulator, the Federal Housing Finance Agency, made the case that uncertainty over the firms’ future has made it more difficult to keep qualified personnel in place.

FHFA acting Director Edward DeMarco said the turnover rate at Freddie Mac has averaged about 13 percent in the past two quarters, well above its five-year average of about 8 percent. Fannie Mae’s turnover rate sits at about an 11 percent annual rate after averaging about six percent rate over the previous three years.

SEC close to deal in Fannie, Freddie case, according to report

WASHINGTON ― Regulators are close to an agreement with Fannie Mae and Freddie Mac to settle a case over disclosing their exposure to risky subprime loans, The New York Times reported on Thursday.

Neither a monetary penalty nor an admission fraud would be included in the settlement under the proposed agreement with the Securities and Exchange Commission, the Times reported, citing several people briefed on the case.

The SEC abandoned hopes of assessing a fine because of the precarious financial positions of the two companies, the newspaper said, citing sources who spoke on condition of anonymity because the deal was not yet final.

The two companies did not view the government’s case as particularly strong, but they said they moved to settle to spare time and resources, the Times said, citing one person close to the talks.

The negotiations have been going on since at least early summer, and a deal may not come until later this year, the newspaper said, citing its sources.

Fannie Mae, Freddie Mac and the SEC all declined to comment, the report said.

A settlement would represent the most significant acknowledgment yet by the mortgage finance giants that they played a central role in the housing boom and bust, the New York Times said.