Fannie Mae loses $2.3B as defaults rise

"Fannie Mae swung to a second-quarter loss that was more than triple what Wall Street expected as conditions in the housing market continued to deteriorate, forcing the mortgage finance giant to make bold cutbacks that will send shock waves through the mortgage market.

Fannie Mae is raising fees, which will be passed onto borrowers as higher interest rates, and abandoning 'Alt-A' borrowers because those loans are defaulting at an alarming rate. These high-risk loans - made to borrowers with solid credit but little proof of their income, or small or no down payments - made up about 11 percent of Fannie's portfolio but accounted for more than half of its credit losses in the quarter.

'The housing market has returned to earth fast and hard,' said Daniel Mudd, Fannie Mae's president and chief executive."

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Fannie Mae loses $2.3B as defaults rise