Government-sponsored Fannie Mae tells investors home prices could fall 10 to 12 percent before improving.
Fannie Mae disclosed to investors and regulators on Wednesday that it expects credit losses from bad loans to worsen in 2008.
The government-sponsored mortgage finance company also said its mortgage investment portfolio shrank by roughly 1 percent in November, compared with the prior month.
The information was included in a sales pitch to prospective investors in a $7 billion share offering Fannie announced Tuesday that, along with a 30 percent cut to its dividend, is intended to shore up the company's balance sheet against mounting credit losses. A spokesman on Wednesday said there was no timeline to establish per-share pricing for the offering.
In a similar move last week, Freddie Mac set a price of $25 a share for a $6 billion preferred stock offering, and halved its quarterly dividend. Freddie Mac lost more than $2 billion in the third quarter as more borrowers missed payments on their home loans.
Fannie, which reported a $1.4 billion third-quarter loss, said credit losses in 2008 will be 8 to 10 basis points, up sharply from its forecast of 4 to 6 points in 2007. Fannie said it will tighten underwriting standards and try to mitigate losses by offering more loan workouts to borrowers in trouble.
Fannie also estimated that its mortgage portfolio fell to about $723 billion last month, compared with $732.29 billion in October.
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