Fannie Continues to Fail

Shade · Feb 27, 2010

Fannie Taps Treasury for $15.3 Billion More After a 10th Loss

By Dawn Kopecki

Feb. 27 (Bloomberg) -- Fannie Mae will seek $15.3 billion in U.S. aid, bringing the total owed under a government lifeline to $76.2 billion, after its 10th consecutive quarterly loss.

The mortgage-finance company posted a fourth-quarter net loss of $16.3 billion, or $2.87 a share, Washington-based Fannie Mae said in a filing yesterday with the Securities and Exchange Commission.

Fannie Mae, which owns or guarantees about 28 percent of the $11.8 trillion U.S. home-loan market, has been hobbled by a three-year housing slump that wiped 28 percent from home values nationwide and led to record foreclosures. The company, which posted $120.5 billion in losses over the previous nine quarters, and rival Freddie Mac were seized by regulators in September 2008.

â€œOur financial results for 2009 reflected the continued adverse impact of the weak economy and housing market, which has resulted in record mortgage delinquencies and contributed to our recording significant credit-related expenses and net losses during each quarter of the year,â€ Fannie Mae said in the filing.

For the full year, Fannie Mae's loss widened to $74.4 billion from $59.8 billion in 2008.
The company's shares, which peaked at $87.81 in December 2000, closed at 99 cents yesterday in New York Stock Exchange composite trading. The Treasury owns 79.9 percent of the company's outstanding common stock.

Avoiding Receiver

After the next government payout, Fannie Mae's borrowings will carry an annual dividend cost of $7.6 billion, which the company said it will repay by borrowing more money from the Treasury. â€œThis amount exceeds our reported annual net income for all but one of the last eight years, in most cases by a significant margin,â€ the company said.

The company said the ability to tap continuing cash infusions from the Treasury this year â€œis critical to keeping us solvent and avoiding the appointment of a receiver.â€

The loss in the fourth quarter was driven in part by a $5 billion writedown on low-income housing tax credits that the Treasury Department barred the company from selling. Rival Freddie Mac took a $3.4 billion charge for the same reason.

Losses at Fannie Mae are likely to grow with rising unemployment and costs to implement President Barack Obama's plans to reduce foreclosures, the company said.

Housing Slump

Fannie Mae and McLean, Virginia-based Freddie Mac survived last year on investments the government made in the companies. The Treasury on Christmas Eve removed a $200 billion aid limit on each company, extending unlimited backing through 2012.

The two companies own or guarantee more than $5 trillion in U.S. residential debt, and were responsible for as much as 75 percent of the new mortgages made last year.

A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to sell or make their house payments, according to a RealtyTrac Inc. forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.

Fannie Mae and smaller rival Freddie Mac were chartered by the government primarily to lower the cost of homeownership by buying mortgages from lenders, freeing up cash at banks to make more loans. The companies make money by financing mortgage-asset purchases with lower-cost debt and by charging fees to guarantee securities they create out of home loans from lenders.

Treasury Borrowings

Fannie Mae's net worth, or the difference between assets and liabilities, was negative $15.3 billion as of Dec. 31, compared with negative $15 billion on Sept. 30 and negative $10.6 billion on June 30, according to company statements.

For the fourth quarter, Fannie Mae decreased reserves for future credit losses to $64.9 billion from $65.9 billion in the previous quarter.

The amount of nonperforming loans that Fannie Mae guarantees for other investors rose to $174.6 billion from $163.9 billion in the third quarter, according to the filing. Fannie Mae also owned $41.9 billion in non-performing loans as of Dec. 31, up from $34.2 billion in the third quarter.

The fair value of Fannie Mae's assets was negative $98.8 billion last quarter, compared with negative $90.4 billion at the end of September.

Future of Companies

The Obama administration will wait until next year to seek legislation that addresses the future of Fannie Mae and Freddie Mac, Treasury Secretary Timothy F. Geithner told the House Budget Committee on Feb. 24.

â€œWe are going to propose reforms to the Congress next year to try to make sure we bring about fundamental change in the housing market and get ourselves in a position where the government is playing a less risky, but more constructive role in supporting housing markets,â€ Geithner said. â€œThat's going to be a difficult set of reforms.â€

The Treasury and the companies' regulator, the Federal Housing Finance Agency, blocked Freddie Mac and Fannie Mae from selling their low-income housing tax credits, which can only be recognized if the companies expect to be profitable.

The Treasury found that an agreement Fannie Mae had to sell about half of its credits would have cost taxpayers more than the company would gain from the deal, according to a November letter to that company.
Click to expand...

Deleted member 208013 · Feb 28, 2010

Governments should not run businesses.

/thread.

Kylesa · Feb 28, 2010

I'm patiently awaiting when people realize that this 'recovery' is just green shoots, and then we hit the 'double dip' depression, where it gets REALLY bad.

Shade · Feb 28, 2010

Kylesa said:

I'm patiently awaiting when people realize that this 'recovery' is just green shoots, and then we hit the 'double dip' depression, where it gets REALLY bad.
Click to expand...

Indeed, people think this is bad now... this is merely the calm before the storm. We have two decades of malinvestment stockpiled which the market hasn't had a chance to liquidate, and the bubble is being reinflated as we speak, carrying those malinvestments with it.

Not to worry, we'll just break some more windows...

morefreedom · Feb 28, 2010

If theese companies can't run themselves and make a profit we should have left them fail. By bailing them out we just fucked our whole country over.

I thought the whole point of capitalism is the concept of risk/reward. Now we're taking the risk part out for the big guys. Not capitalisim anymore, just some deep deep shit we're getting ourselves into that will take a long time to get out of.

Shade · Feb 28, 2010

It never was capitalism.

Buddy Dink · Feb 28, 2010

Pack a bowl and watch it come crumbling down...

Kylesa · Feb 28, 2010

Shade said:

Indeed, people think this is bad now... this is merely the calm before the storm. We have two decades of malinvestment stockpiled which the market hasn't had a chance to liquidate, and the bubble is being reinflated as we speak, carrying those malinvestments with it.

Not to worry, we'll just break some more windows...
Click to expand...

We all die in the end!

Kylesa · Feb 28, 2010

morefreedom said:

If theese companies can't run themselves and make a profit we should have left them fail. By bailing them out we just fucked our whole country over.

I thought the whole point of capitalism is the concept of risk/reward. Now we're taking the risk part out for the big guys. Not capitalisim anymore, just some deep deep shit we're getting ourselves into that will take a long time to get out of.
Click to expand...

You do realize that Fannie and Freddy are GSE's?

Government-owned corporation - Wikipedia, the free encyclopedia

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