Íbúðalánasjóður - Company Announcement

- Estimated loss because of the Icelandic State's takeover of the three biggest banks in Iceland

The Housing Financing Fund has not managed to avoid the crisis prevailing in
financial markets in previous weeks, and it is clear that the fund will sustain
substantial losses because of the Icelandic State's takeover of the banks. The
fund's status is nevertheless still strong. There is a State guarantee for the
Housing Financing Fund's obligations, and it is well set to perform its
intended statutory function. 

The fund had about ISK 43 billion in deposits, bonds and derivative agreements
at the Icelandic banks at the start of October, and the fund's losses on these
assets are estimated to be between ISK 8 and 12 billion. Nevertheless, the
fund's final loss will not come to light until after the banks' settlement with
their receivership committees. It is also very important whether the Housing
Financing Fund's assets will be offset against the fund's debts to the banks. 

Under the fund's policy on risk and monetary management, it must have at its
disposal a certain amount of liquid assets enabling it to meet payments on its
debts and grant loans to housing owners for a certain period without having to
apply for new loan capital on the market. The fund has invested these liquid
assets domestically, via deposits and the purchase of market securities of
domestic lending institutions. The Act on Housing Affairs states that the
Housing Financing Fund may engage in transactions with its financing bonds andother securities. 

The Act on the Housing Financing Fund makes no stipulation regarding a certain
equity ratio, but a regulation provides that this ratio shall usually exceed
5%, and the relevant government authority must be notified if it looks to be
heading below 4%. The fund's equity capital at the end of June was ISK 20.6
billion, and the equity ratio was 8%. Assuming that the fund's loss will be ISK
10 billion, its equity capital will be ISK 10.6 billion and the equity ratio
4.1%. 

The Board of Directors of the Housing Financing Fund has discussed the fund's
status at a meeting today, and the Minister of Social Affairs and the
monitoring agencies, The Financial Supervisory Authority, Iceland, and The
Icelandic National Audit Office, have been briefed on the matter. 

For further information contact:
Gudmundur Bjarnason, Managing Director of the Housing Financing Fund, tel. 569
6900 or 892 7624