Fannie Mae's $2.3 billion loss triples estimate; taxpayers face big bailout

Fannie Mae (NYSE: FNM) reported a whopper of a second quarter loss. And it was only three times worse than the 68 cents a share loss that analysts had expected, according to The Associated Press. But the good news is that it doesn't really matter how much money Fannie loses. That's because taxpayers will pay to bail it out -- not its highly paid executives.

AP reports some stunning details. Fannie lost $2.3 billion, or $2.54 a share in Q2 2008 -- quite the come down from its profit of $1.95 billion, or $1.86 a share in Q2 2007. Why the loss? According to AP, Daniel Mudd, Fannie Mae CEO, said "credit performance has continued to deteriorate and, based on our experience in July, we anticipate further increases in our combined loss reserves,"

What to do? Mudd -- whose name is mud in my book -- says Fannie Mae will reduce its dividend from 35 cents a share to 5 cents a share and stop buying Alt-a mortgages -- those "made to borrowers with solid credit but little proof of their income, or small or no down payments." And Mudd says Fannie won't need our money for a bailout.

If Fannie does use our money, will the SEC prosecute Mudd for spreading false rumors? Don't hold your breath. Meanwhile its stock is down 14% in pre-market.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Fannie Mae securities.