Fannie Mae , the largest provider of U.S. home mortgage funding, said on Friday it needs more capital from the U.S. Treasury after a $23.2 billion loss in the first quarter and warned government housing programs would cut deeper into its profitability.

The government-controlled company said its regulator requested $19 billion from the Treasury under a funding commitment that was recently doubled to $200 billion. The credit, in the form of senior preferred stock purchases, was established as soaring losses led the government to push the company into conservatorship in September.

As the nation's housing market reels in its worst downturn since the 1930s, credit-related expenses accounted for the majority of Fannie Mae's loss, at $20.9 billion. It also took a $5.7 billion loss on mortgage securities.

Provisions for credit losses soared 85 percent as the U.S. economy faltered, expanding delinquencies -- which have wreaked havoc on the global financial system -- to consumers with better credit, it said.

The U.S. government on Friday said the unemployment rate rose to 8.9 percent, its highest since September 1983. See: [nN08455623].

Fannie Mae's guaranty business, including loans with lower risk characteristics, has begun to experience increases in delinquency and default rates as a result of the sharp rise in unemployment, the continued decline in home prices, the prolonged downturn in the economy and the rise in loan balances relative to property values, it said.

The Washington-based company and rival Freddie Mac are crucial cogs to the nation's housing system, providing a market for loans that lenders originate. They buy mortgages for their $1.7 trillion in debt-financed portfolios or guarantee loans packaged into mortgage-backed securities.

But they misjudged the downturn, sending them into the arms of the government that has since rescued banks, insurance companies and auto makers.

FANNIE NET WORTH

Fannie Mae said it will likely need more capital. It already received $15.2 billion in March from the Treasury.

All the signs indicate that Fannie Mae coming out of conservatorship and becoming a public company again are close to zero, said Gary Gordon, a managing director at Portales Partners in New York.

Fannie Mae said its role as a linchpin in President Barack Obama's program to boost refinancings and modifications of risky mortgages will likely have a material adverse effect on its business and net worth.

The programs, which can reduce interest rates on loans and defer payments, lend credence to speculation the U.S. is increasing its reliance on Fannie Mae and Freddie Mac to stabilize housing. The programs are seen as coming at the expense of shareholders, who were nearly wiped out last year as the stock dropped below $1, where it trades today.

For a mortgage in a mortgage-backed security to be modified, Fannie Mae must purchase the loan out of the trust and recognize a loss under current accounting rules. Those losses may increase significantly as it ramps up modifications, which doubled in the quarter to 12,418 from the last three months of 2008, it said.

The government also recently increased the limit on the company's investment portfolio to $900 billion from $850 billion. The balance has been little changed near $780 billion from October to March, however, as federal purchases of MBS increased costs of the assets, or to make room for required purchases as U.S. housing programs kick in, analysts said.

The market has to decide ... how much of this creates more demand in the market and how much provides the relief that was critical to executing Fannie Mae's second-half-of-the-year game plan with U.S. housing programs, said Jim Vogel, a strategist at FTN Financial Capital Markets in Memphis, Tennessee.

The $23.2 billion first-quarter loss compares with losses of $2.2 billion in the year ago period, and $25.2 billion in the previous quarter.

Fannie Mae's results appear to counter recent data suggesting the housing market is bottoming as falling home prices and mortgage rates increase affordability. Earlier this week the government said pending sales of U.S. homes rose in March for a second straight month.

Robert Shiller, the Yale University housing economist who predicted the housing bubble, this week said a bottom would probably not be seen until 2010.

The speed of the downturn has greatly limited Fannie Mae's ability to estimate loss reserves, it said. After about a 10 percent decline in 2008, house prices could plunge another 7 percent to 12 percent this year, it said.

(Additional reporting by Julie Haviv;Editing by Padraic Cassidy)

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