GSE MADNESS: Fannie Mae Taps Treasury for $15.3 Billion More After 10th Consecutive Quarterly Loss
Bartender, I need another drink. My girl Fannie likes to spend. There's a sale on barely-used, no-money-down mortgages at Citigroup. She took the credit card.
Anyone else remember Paulson's assurances in the Spring and Summer of 2008 that Fannie & Freddie were completely fine and adequately capitalized.
-----
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.
“Our 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,” 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. “This amount exceeds our reported annual net income for all but one of the last eight years, in most cases by a significant margin,” the company said.
The company said the ability to tap continuing cash infusions from the Treasury this year “is critical to keeping us solvent and avoiding the appointment of a receiver.”
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.
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.
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.
“We 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,” Geithner said. “That’s going to be a difficult set of reforms.”
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.
Feb 27, 2010 at 11:03 AM
Reader Comments (5)
So you spend until you don't have anything left, then you borrow so you can keep spending Then you borrow so much and spend every penny of it, that you can no longer make the interest payments. So, obviously, you borrow more to pay the interest on the money you already borrowed and spent.
What could possibly go wrong with that plan?
I have got to try this one...
And in September 1938, Hitler promised not to invade Czechoslovakia. In March 1939 Hitler invaded Czechoslovakia and on September 1st 1939 he invaded Poland.
Paulson, Bernanke and Goldman Sachs are a threat to OUR nation. They are more of a threat than the radical Muslims. The radical muslims just want to kill our children, Paulson Bernanke and Goldman Sachs have been trying to enslave the world by destroying our currencies and our sovereignty.