Fannie Mae Loses Money on Alternative Loans
Fannie Mae is supposed to be prime, but its reporting some issues with loans involving less than perfect credit.
On Tuesday, Fannie Mae (nyse: FNM - news - people ) executives told analysts that 43.0%, or $946 million, of the $2.2 billion in losses incurred during the first quarter involved Alt-A loans. They also said that the company’s “Alt-A book will continue to drive an outsize portion of our overall credit losses.” Fannie also reported $344.6 billion current Alt-A exposure and a limited strategy for stemming future losses.
These types of loans are attractive to lenders because the rates are higher than rates on prime classified mortgages, but they are still backed by borrowers with stronger credit ratings than subprime borrowers. However, with the higher rates comes additional risk for lenders because there is a lack of documentation–including limited proof of the borrower’s income.
Fannie’s Chief Executive Daniel Muddacknowedged that underwriting wasn’t what it should have been during the mortgage market’s heyday, saying that every company has a got part of their book that worries them most, and “In our case, it’s the Alt-A book and we are focused on that.”
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