Fannie Mae Reports Quarterly Profit Drop
washingtonpost.com
By Albert B. Crenshaw
Washington Post Staff Writer
Wednesday, October 16, 2002; Page E03
Depressed by a new accounting rule covering derivatives, earnings at Fannie Mae, the giant mortgage finance company, declined sharply for both the third quarter and for the nine-month period ended Sept. 30, the company reported yesterday.
For the quarter, the company reported profit of $994.3 million (98 cents per share), down from $1.23 billion ($1.19) in the year-earlier period.
Fannie Mae earned $3.67 billion ($3.59) for the first nine months of 2002, compared with $3.93 billion ($3.80) for same period in 2001.
The company emphasized that its operating income rose strongly for both periods. On that basis -- excluding various unrealized losses that must be recorded under generally accepted accounting rules -- income was up about 18.5 percent, to $1.63 billion, for the quarter and up 20.2 percent, to $4.72 billion, for the nine-month period.
D.C.-based Fannie Mae is a congressionally chartered, stockholder-owned corporation that buys home mortgages from lenders to provide additional capital to the nation's housing markets.
The company uses various forms of financial derivative instruments as hedges to make the cash-flow characteristics of the mortgages it buys match those of the borrowing it does to finance its operations.
Under Financial Accounting Standard 133, which the company has used since Jan. 1, 2001, it must mark to current market value certain components of its derivative portfolio. That requirement generated a $965.2 million increase in unrealized losses in its derivatives in the third quarter.
The company noted that since it holds its derivatives to maturity, these "mark-to-market" losses are never realized.
Fannie Mae said other aspects of its business are thriving. It agreed to buy $128 billion in mortgages during the quarter. Fee income and other income jumped $43 million in the quarter, and the company's net interest rate margin rose slightly as well. The company also reported a decline in credit-related losses in the third quarter, to $13.9 million, from $18.7 million in the year-earlier period. |
