<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Nov 11, 2008
</TR><!-- headline one : start --><TR>Fannie Mae faces funding risk <!--10 min-->
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NEW YORK - FANNIE Mae, the largest provider of funding for US home mortgages, on Monday said market turmoil and lingering concerns about its business will raise its risks of refinancing debt this quarter.
Fannie Mae said it will continue to rely on short-term funding for its massive portfolio, and to raise cash, as some investors shun its 'benchmark' note programme.
Fannie Mae boosted short-term borrowings to 33.7 per cent of debt outstanding as of September from 29.4 per cent in December, the company said in a regulatory filing.
The shift comes amid a drop in demand for Fannie Mae long-term bonds from investors outside the US, and as a federal programme to guarantee some unsecured bank debt puts such 'federal agency' debt at a sudden disadvantage.
'Due to current financial market conditions and current market concerns about our business, we currently expect this trend toward dependence on short-term debt and increased roll over risk to continue,' it said.
Fannie Mae has US$140 billion (S$209 billion) in maturing short-term debt in November and December, according to Barclays Capital. Fannie Mae had US$844.4 billion in total debt as of Sept 30.
Debt issuance is the lifeblood of Fannie Mae and rival Freddie Mac, which own or guarantee nearly half of all US mortgages.
The importance of the companies to the housing market has increased as the credit crisis deepened, and led the government in September to force them into conservatorships to ensure they have enough capital to operate.
Risks of using more short-term debt issues include rising interest rates and the possibility the company may not draw enough demand to refinance maturing securities, Fannie Mae said in the filing. The company is 'increasingly' exposed to those risks, it said.
Fannie Mae on Monday reported a record US$29 billion third quarter loss as it wrote-down a tax-break and costs of the housing downturn mounted.
The loss eroded the net worth of the company to levels that raised chances of a capital injection by the US Treasury, as pledged in the the conservatorship.
Long-term debt issuance prospects were 'dim,' Barclays analysts said, also because the company is bumping against limits defined under its conservatorship. Fannie Mae said it was US$12 billion under its estimated debt limit as of Oct 31.
'We expect little or no growth for either GSE in the near term' due to the need for equity injections, restrictions on liabilities and inaccessible long-term debt markets, analysts at Barclays said in a research note.
That raises the possibility that Fannie Mae for a second straight month will abandon its issuance of benchmark notes that had fuelled the company's growth with a reputation for predictability and liquidity. It is slated to announce a note sale on Nov 17.
For now, the short-term debt is trading well and, in some cases, even better than Treasury securities, said Mr Scott Graham, head of the US debt syndicate at RBS Greenwich Capital Markets in Greenwich, Connecticut.
Fannie Mae and Freddie Mac are also not alone in negotiating the pitfalls of capital markets, he said.
'Liquidity right now is not just an agency phenomenon,' Mr Graham said. 'It's year-end, there is massive deleveraging, cash is being held on the sidelines and banks being very slow to lend. That has created a lot of of illiquidity.' -- THOMSON REUTERS
</TR><!-- headline one : start --><TR>Fannie Mae faces funding risk <!--10 min-->
</TR><!-- headline one : end --><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"-->
NEW YORK - FANNIE Mae, the largest provider of funding for US home mortgages, on Monday said market turmoil and lingering concerns about its business will raise its risks of refinancing debt this quarter.
Fannie Mae said it will continue to rely on short-term funding for its massive portfolio, and to raise cash, as some investors shun its 'benchmark' note programme.
Fannie Mae boosted short-term borrowings to 33.7 per cent of debt outstanding as of September from 29.4 per cent in December, the company said in a regulatory filing.
The shift comes amid a drop in demand for Fannie Mae long-term bonds from investors outside the US, and as a federal programme to guarantee some unsecured bank debt puts such 'federal agency' debt at a sudden disadvantage.
'Due to current financial market conditions and current market concerns about our business, we currently expect this trend toward dependence on short-term debt and increased roll over risk to continue,' it said.
Fannie Mae has US$140 billion (S$209 billion) in maturing short-term debt in November and December, according to Barclays Capital. Fannie Mae had US$844.4 billion in total debt as of Sept 30.
Debt issuance is the lifeblood of Fannie Mae and rival Freddie Mac, which own or guarantee nearly half of all US mortgages.
The importance of the companies to the housing market has increased as the credit crisis deepened, and led the government in September to force them into conservatorships to ensure they have enough capital to operate.
Risks of using more short-term debt issues include rising interest rates and the possibility the company may not draw enough demand to refinance maturing securities, Fannie Mae said in the filing. The company is 'increasingly' exposed to those risks, it said.
Fannie Mae on Monday reported a record US$29 billion third quarter loss as it wrote-down a tax-break and costs of the housing downturn mounted.
The loss eroded the net worth of the company to levels that raised chances of a capital injection by the US Treasury, as pledged in the the conservatorship.
Long-term debt issuance prospects were 'dim,' Barclays analysts said, also because the company is bumping against limits defined under its conservatorship. Fannie Mae said it was US$12 billion under its estimated debt limit as of Oct 31.
'We expect little or no growth for either GSE in the near term' due to the need for equity injections, restrictions on liabilities and inaccessible long-term debt markets, analysts at Barclays said in a research note.
That raises the possibility that Fannie Mae for a second straight month will abandon its issuance of benchmark notes that had fuelled the company's growth with a reputation for predictability and liquidity. It is slated to announce a note sale on Nov 17.
For now, the short-term debt is trading well and, in some cases, even better than Treasury securities, said Mr Scott Graham, head of the US debt syndicate at RBS Greenwich Capital Markets in Greenwich, Connecticut.
Fannie Mae and Freddie Mac are also not alone in negotiating the pitfalls of capital markets, he said.
'Liquidity right now is not just an agency phenomenon,' Mr Graham said. 'It's year-end, there is massive deleveraging, cash is being held on the sidelines and banks being very slow to lend. That has created a lot of of illiquidity.' -- THOMSON REUTERS
