Fannie Mae and Freddie Mac limping back to profit
Troubled mortgage insurers Fannie Mae and Freddie Mac are starting to creep back toward solvency. The federal government has lent both houses more than $130 billion since Fannie and Freddie were placed under conservatorship in 2008. However, a new round of foreclosures is on the horizon, and that may undo any progress that has been made.
Losses slow as Freddie and Fannie get houses in order
Freddie Mac and Fannie Mae were one of the largest recipients of emergency loans during the federal bailouts of the past several years. Both mortgage houses received a combined sum of more than $130 billion to keep the real estate market afloat. However, the two toxic companies are starting to hemorrhage less money, according to ABC. During the last quarter of 2010, the period from October to December, Fannie Mae posted a loss of only $2.1 billion and Freddie Mac posted a loss of only $1.7 billion. In the same period of 2009, Fannie posted a $16.3 billion loss and Freddie posted a $7.8 billion loss. However, Fannie and Freddie have both requested additional loans, with Fannie asking for a further $2.6 billion and Freddie seeking another $500 million.
Plans to wind down the mortgage giants
For decades, Fannie Mae and Freddie Mac have played a crucial role in the real estate industry. The two companies purchase mortgages and resell them as investments in order to free up capital for loan lenders to lend more mortgages. However, the government is serious about drastically reducing Fannie and Freddie’s involvement in the mortgage market, including possibly phasing them out altogether. Treasury Secretary Timothy Geithner has admonished Congress to have a serious plan ready before trying to vote on anything, according to USA Today. Geithner cautioned House Republicans eager to cut the programs that doing so could have an adverse effect on the real estate market, including possibly destabilizing the housing finance industry entirely. Geithner has recommended a gradual program as the best course.
Darkest before dawn
Fannie and Freddie are both expected to endure further damage in coming months. Though Fannie and Freddie own roughly 50 percent of all mortgages in the United States, and 90 percent of all mortgages originated in the past few years, there is a growing backlog of foreclosures that cannot be completed until foreclosure reforms related to the “robo-signing” scandal are resolved. Whatever reforms take place regarding Fannie and Freddie, Treasury Secretary Geithner expects housing prices to rise a little bit over the next few years, according to Reuters. He also recommended that given housing conditions over the past few years, home buyers put larger amounts of cash down to ensure greater stability.