Fannie Mae's CEO told shareholders Tuesday that the housing market is "about halfway through" its crisis and home prices could fall as much as 25 percent before the worst is over.
The largest U.S. buyer and guarantor of home mortgages will be able to weather the downturn and expand its business, Fannie Mae's president and CEO, Daniel Mudd, said as he and other top executives faced shareholders at an annual meeting in New Orleans.
As Mudd spoke, a key Senate panel approved a $300 billion homeowner rescue plan to provide cheaper, government-backed mortgages to as many as 500,000 struggling borrowers. The legislation also includes tougher federal oversight of Fannie Mae and its smaller government-sponsored sibling, Freddie Mac.
Under a key concession to Republicans for backing the plan, the rescue would be financed with a share of the two companies' profits. Fannie and Freddie would finance a new affordable housing fund _ intended to aid low-income people _ that temporarily would be used to pay for the homeowner rescue.
Fannie shares declined $1.21, or 4.2 percent, to $27.74 Tuesday. Freddie's stock dipped 70 cents, or nearly 3 percent, to $26.31.
After posting a first-quarter loss of $2.2 billion amid rising mortgage defaults, Washington-based Fannie Mae earlier this month cut its dividend and raised $7 billion in new capital by issuing new shares to shore up its finances. Federal regulators loosened the capital requirements of Fannie and Freddie, to enable them to play a bigger role to bolster the housing market.
Freddie Mac's chief financial officer, Buddy Piszel, said Tuesday the company expects the shakeout in the mortgage industry to fuel substantial growth and a return to profitability for Fannie and Freddie. The shocks and cash squeeze in the mortgage securities market have pushed many independent players out, leaving more room for the government-chartered companies to operate.
Fannie and Freddie together now issue more than three-quarters of all securities backed by home mortgages.
Piszel, speaking at a conference in London, said Freddie expects 15 percent to 20 percent revenue growth this year.
Mudd told the Fannie shareholders meeting the company expects U.S. home prices to fall as much as 25 percent from their highs of mid-2005, based on the widely tracked Case-Shiller housing index, which focuses on major metropolitan areas.
Fannie officials later clarified his remarks to note that Mudd was not referring to the company's own forecast of home prices, made earlier this month, which is for an average price decline of 15 percent to 19 percent.
Losses for Fannie from defaulted mortgages are expected to worsen next year.
"This year and next are going to be tough as home prices find bottom," Mudd said Tuesday.
The housing market is in its most severe slump since the Depression, he said, a crisis "which we're likely to be about halfway through right now."
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