WASHINGTON - Mortgage-finance company Fannie Mae set a price of $25 a share yesterday for the $7 billion in stock it is selling next week to stabilize finances as losses from soured home loans pile up.
The company, which finances or guarantees 1 of every 5 home loans in the United States, announced Tuesday that it would sell the preferred stock and cut its dividend 30 percent, to 35 cents a share, starting in the first quarter of next year.
Wall Street responded robustly to Fannie's stock offering, as it did last week to the $6 billion sale of preferred stock - also at $25 a share - by Freddie Mac, Fannie's smaller government-sponsored competitor in the $11 trillion home-loan market.
With a price of $25 each, the 280 million shares of preferred stock being sold Tuesday have a fixed dividend rate of 8.25 percent. That is a smaller payout for investors than the 8.375 percent in Freddie's special stock sale.
Fannie's dividend is locked in through 2010; Freddie's, through 2012.
Fannie shares gained $2.61, or 7.22 percent, in trading yesterday to finish at $38.74, but later lost a dollar at one point in after-hours trading, at $37.74. The company's pricing announcement came after the close of regular trading.
Investors are keeping a close eye on the offerings as they gauge the damage inflicted by the turmoil this year in the credit and housing markets.
Washington-based Fannie warned investors Wednesday that its losses would mount next year from bad mortgages. Its mortgage investments declined $9 billion in November from October as it shed holdings to raise capital in the wake of a $1.4 billion loss in the third quarter.
Fannie and Freddie have had to set aside billions of dollars to account for bad loans, eroding their profits at a time when home prices are falling and foreclosures on high-risk mortgages are rising.