US mortgage finance firm Fannie Mae – one of the firms at the heart of the financial crisis – has reported a fourth-quarter net loss of $6.5bn.
More formally known as the Federal National Mortgage Association, Fannie Mae helps boost finance in the industry by turning mortgages into financial products, which it sells as mortgage-backed securities.
It was these that were one of the main causes of the crisis, when many of the securities – which were often re-sold several times – turned out to be virtually worthless.
A spree of lending to high-risk clients on high income multiples with few affordability checks meant many of the original mortgages were in default.
Between them, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) owned or guaranteed about half of America’s $12trn mortgage market.
As a result of the crisis, both organisations were delisted from the New York Stock Exchange and placed under government control.
Fannie Mae is still a massive player, howerver, and provided roughly $570bn in liquidity to the mortgage market in 2017.
The company's pre-tax income for 2017 was $18.4bn, compared with $18.3bn in 2016. However, net income was $2.5bn, compared with $12.3bn in 2016.
As a result, Fannie Mae reported a Q4 net loss of $6.5bn, compared with net income of $3.0bn in Q3.
Tax reform to blame
The main culprit for the loss was president Trump’s shake-up of the US corporate tax laws, which meant that tax credits held on its balance sheet were worth substantially less.
Fannie Mae reported a net deficit of $3.7bn for the year and will submit a request to the US Treasury to make up the deficit.
“It has been a great policy failure to allow these enterprises to operate without capital reserves,” Rob Zimmer, acting executive director of the Community Mortgage Lenders of America, told MarketWatch.
“When Fannie says ‘we’re going to be profitable for the foreseeable future,’ no one ever knows what ‘foreseeable’ means,” he added. “Nobody in the government foresaw the last recession until it hit them right between the eyes.”