"It's very nice for the folks at Fannie to clarify what their cash exposure is, but it still doesn't make me feel that good about credit," said Christopher Whalen, managing director of Institutional Risk Analytics, which advises companies on risk management. "Investors are trying to understand what the exposure is in this marketplace right now."
Fannie Mae shares have slumped since last week after it said the credit crisis had sapped values of mortgages it owns, widening its net loss for the period. The loss, which surprised some investors, fueled speculation the government-sponsored enterprise known for financing mostly "prime" loans is more exposed to risky mortgages than originally thought.
The cure rate, or the rate at which delinquent loans bought from trusts become current, has declined and may fall more, Fannie Mae said in a filing last week.
Many of the loans bought out of trusts never go into foreclosure and are often cured at no expense, Chief Financial Officer Stephen Swad said on the hastily arranged analyst call to address "technical accounting questions."
The accounting "has the effect of pulling forward losses well before they are realized," Swad said. "Some loans we have seen cured at no expense."
Under U.S. accounting rules, Fannie Mae must record the "fair value" of the loans, or the price the assets could get in a market transaction. The mortgages were hit especially hard last quarter, but executives stressed loans repurchased are modified, cured, or foreclosed instead of sold.
Requests for more details on the expected cure rate were not fulfilled, frustrating some analysts who chided executives for being unhelpful. Swad pledged to increase disclosures to help analysts understand the cure rate, possibly identifying the number of loans that are being repurchased.
With Friday's drop, the stock has lost more than 16 percent of its value this week. A Fortune magazine article posted online on Thursday called into question some recent accounting changes, leaving investors concerned about how the company was estimating potential losses on mortgages it owns.
Trading in Fannie Mae, Freddie Macand major lenders has reached "panic" proportions over whether the companies are viable, said David Dreman, chairman of Dreman Value Management and a major Fannie Mae shareholder. He likened the trading to the banking crisis of the early 1990s, though this time the institutions are better equipped to weather losses.
"They're not really write-offs as such," Dreman said. "They take back a loss, but they don't write it off because they often get a lot of recovery."
Fannie Mae shares recovered some losses by 1:05 p.m. in New York, when the stock was quoted down $2.05 to $40.99. Earlier the stock was at its lowest since April 1997.
Fannie Mae put options saw heavy trading as its shares fell. Traders rushed to buy soon-to-expire November puts, allowing investors to sell Fannie shares at $40 each on a volume twice the existing open interest.
It appears to be an "eleventh-hour bet that Fannie Mae shares will end the session at or below $39.55," said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group. November options go off the board after the close.