Fannie Mae Facing Rare Earnings Decrease

Fannie Mae's financial woes are set to deal the mortgage giant its first earnings setback since 1985. Bloomberg.com reports "Earnings per share for Fannie Mae, the largest buyer of U.S. mortgages, will fall 3.4 percent this year, according to the median estimate of 19 analysts surveyed by Thomson Financial".

In addition to being forced to up capital reserves, the spread between what the firm pays and what it earns is shrinking. "Earnings are going down and there is nothing they can do about it,'' said Paul Miller, an analyst at Friedman Billings Ramsey Inc.

Another market factor working against Fannie Mae is the surge in adjustable rate mortgages which provide less profit than the fixed rate loans. "Adjustable-rate mortgages will grow to 37 percent of all home loans next year from 19 percent in 2003, according to the Mortgage Bankers Association".