Fannie Mae, Freddie Mac foreclosures cost tax payers billions

An auction sign in the window of a house after foreclosure

Fannie Mae foreclosures are fueling losses and costing the government billions, but Congress, afraid to make the housing market worse, is avoiding the issue. Flickr photo.

Fannie Mae foreclosures are swamping the nation’s largest mortgage buyer. Fannie Mae reported an $11.5 billion loss in the first quarter of 2010. Fannie Mae stock has been in freefall. Freddie Mac, Fannie Mae’s little brother, lost more than $6.7 billion. Monday, Fannie Mae asked the U.S. Treasury for an infusion of $8.4 billion. Together, Fannie and Freddie say they need about $20 billion to stay afloat.

Fannie and Freddie: the only game in town

Politicians on both sides of the congressional aisle are eager to score points by threatening to quit giving money to Fannie and Freddie. The problem is that Fannie and Freddie are often the only loan company in town, since the market for mortgage securities froze up in 2008. Fannie Mae foreclosures are steadily increasing, so nobody in Congress has the guts right now to do anything that could further weaken the housing market.

Fannie and Freddie: politics as usual

Politicians have been avoiding action on Fannie Mae and Freddie Mac, even though the Senate passed an amendment Wednesday placing stricter rules on writing loans. Politico reports that  the Senate failed to pass a provision on Fannie Mae and Freddie Mac Tuesday night. Republicans and Democrats can’t agree about language dealing with loans and who should be responsible for overseeing regulations. Democrats want a newly created consumer protection agency to regulate the loans. Republicans whipped out the big government card, saying that the consumer protection agency would have too much power.

Fannie and Freddie go deep

Fannie Mae and Freddie Mac behaved like any other bank during the housing bubble. The greedy siblings collected $3.9 trillion from investors who bought bundles of mortgages they assembled. Fannie Mae stock soared, for awhile.  Fannie Mae and Freddie Mac are publicly traded companies, but when they got in too deep, investors lost confidence. Fannie and Freddy threatened to collapse–bring down the nation’s housing market with them. To avert catastrophe, the federal government was forced to take over Fannie and Freddie in 2008.

Fannie Mae stock

To date, the U.S. Treasury has thrown more than $145 billion into the Fannie/Freddie rabbit hole. Medill Chigago reports that meanwhile Fannie Mae reported a quarterly loss of $11.53 billion, or $2.29 per diluted share of Fannie Mae stock, which is good news considering that losses were $23.2 billion and $4.09 a share the year before. Analysts had estimated a loss of $1.75 per share. Monday’s report marked the 11th consecutive quarterly loss.

On Tuesday, Fannie Mae’s shares traded at about $1.05. Two years ago, shares prices sat at about $26.30. And, for much of the last decade, shares fluctuated between $65 and $80. The stock closed down 0.94 percent at $1.05 on Tuesday.

Fannie and Freddie’s dilemma

Fannie Mae and Freddie Mac are hemorrhaging money because they own or guarantee more than 50 percent of mortgages in the U.S. The New York Times reports that details about losses at Freddie Mac paint a scary picture of the current housing market. Freddie Mac foreclosures rose from 29,145 properties at the end of March 2009 to almost 54,000 units in 2010. Freddie’s nonperforming assets almost doubled, rising to $115 billion from $62 billion. Freddie Mac foreclosures lose about 39 percent on average when they sell.

Freddie Mac delinquencies

Freddie Mac is also plagued by delinquencies, according to the New York Times. Mortgage payments more than 90 days late in Freddie’s single-family conventional loan portfolio are 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in Freddie’s Alt-A book, one step up from subprime loans, totaled 12.84 percent. Delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on option-adjustable rate loans totaled 19.8 percent.

Fannie and Freddie: indefinite, infinite losses

Fannie Mae was created during The Great Depression to make sure that sufficient funds were available to mortgage lenders, then rechartered by Congress in 1968 as a publicly traded company. Freddie was created for the same reason in 1970. Today, both companies are caught between a rock and a hard place. When the housing market tanked, Fannie and Freddie began losing billions. But the mortgage meltdown also made the nation’s housing market totally dependent on them. Fannie and Freddie exist to support the mortgage market by buying loans from banks and other lenders. At the same time, they must work to minimize credit losses so the billions that taxpayers have thrown at them don’t vaporize.

Other recent posts by bryanh

Hanging international flags

Multiculturalism fails in the U.S.

Multiculturalism has always existed as a social phenomenon, but its advancement, as well as dangers, became apparent in the last century...