WASHINGTON (AP) – Fannie Mae has again asked taxpayers for more money after reporting a first-quarter loss of more than $13 billion.
The mortgage finance company, which was rescued by the government in September 2008, said it needs an additional $8.4 billion from the government to help cover mounting losses.
Fannie Mae says it lost $13.1 billion, or $2.29 per share, in the January-March period. That takes into account $1.5 billion in dividends paid to the Treasury Department. It compares with a loss of $23.2 billion, or $4.09 a share, in the year-ago period.
The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request for aid will bring Fannie Mae’s total to $83.6 billion. The total bill for the duo will now be nearly $145 billion.
Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie, lifting an earlier cap of $400 billion.
Fannie and Freddie play a vital role in the mortgage market by purchasing mortgages from lenders and selling them to investors. Together the pair own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages. (emphasis mine)
“The federal debt stands at $8 trillion. But the Fannie Mae, Freddie Mac, and Federal Home Loan Bank debt stands at $8 trillion as well,” Anthony Sanders, a real estate expert from George Mason University, told the recent House hearing. Together, those debts are greater than a year’s gross domestic product, which he called a “Grecian Formula” of debt issuance to fund housing goals.
A solution to the thorny problem of housing-market finance is notably absent from the financial reform bill now working its way through Congress.
Please keep this graph of the upcoming Alt A and Option Arm resets from 2010 thru 2012 in mind while reading the following articles. If you folks aren’t choking on your cheerios now, you have much stronger illusionary capabilities than I do.
How many more ways can we say, ‘we are so screwed’…
MCLEAN, Va.—When Charles E. Haldeman Jr. became Freddie Mac’s chief executive officer in August, the ailing housing-finance giant had already consumed $51 billion of government money to stay afloat. It’s likely to need even more.
Freddie’s federal overseers nevertheless have instructed Mr. Haldeman to focus on something that isn’t likely to make the bleak balance sheet look any better: carrying out the Obama administration plan to allow defaulted borrowers to hang onto their homes.
On a recent afternoon, employees at Freddie’s headquarters here peppered Mr. Haldeman with concerns about the company’s future. He responded that they were “fortunate” to have such a clear mission—the government’s foreclosure-prevention drive. “We’re doing what’s best for the country,” he told them.
Freddie and its larger rival, Fannie Mae, were among the first big financial institutions to receive massive federal bailouts after the financial crisis hit in 2008. Government officials have been racing to fix bailed-out car makers and banks and are pushing to reshape the financial-services industry. But Fannie and Freddie remain troubled wards of the state, with no blueprints for the future and no clear exit strategy for the government.
Nearly a year and a half after the outbreak of the global economic crisis, many of the problems that contributed to it haven’t yet been tamed. The U.S. has no system in place to tackle a failure of its largest financial institutions. Derivatives contracts of the kind that crippled American International Group Inc. still trade in the shadows. And investors remain heavily reliant on the same credit-ratings firms that gave AAA ratings to lousy mortgage securities.
Fannie and Freddie, for their part, remain at the core of a housing-finance system that inflated a dangerous housing bubble. After prices collapsed, sending shock waves around the world, the federal government put America’s housing-finance system on life support. It has yet to decide how that troubled system should be rebuilt.
On Dec. 24, Treasury said there would be no limit to the taxpayer money it was willing to deploy over the next three years to keep the two companies afloat, doing away with the previous limit of $200 billion per company. So far, the government has handed the two companies a total of about $111 billion.
The government is willing to tolerate such open-ended exposure for two reasons. First, it sees the companies as essential cogs in the fragile housing market. Fannie and Freddie buy mortgages originated by others, holding some as investments and repackaging others for sale to investors as securities. Together with the Federal Housing Administration, they fund nine in 10 American mortgages. Worries about potential insolvency would cripple their ability to fund home loans, which would hamstring the market.
Remember that graph above with mortgage loan resets? “they fund nine in 10 American mortages.” Which takes us to our next article and Obama’s red crayon, math sleight of hand.
Feb. 4 (Bloomberg) — Look through President Barack Obama’s proposed 2011 budget, and you’ll see a line calling for a $235 million increase in the Justice Department’s funding to fight financial fraud. Lucky for them, the people who wrote the budget can’t be prosecuted for cooking the government’s books.
Whether on Wall Street or in Washington, the biggest frauds often are the perfectly legal ones hidden in broad daylight. And in terms of dollars, it would be hard to top the accounting scam that Obama’s budget wonks are trying to pull off now.
The ploy here is simple. They are keeping Fannie Mae and Freddie Mac off the government’s balance sheet and out of the federal budget, along with their $1.6 trillion of corporate debt and $4.7 trillion of mortgage obligations.
Never mind that the White House budget director, Peter Orszag, in September 2008 said Fannie and Freddie should be included. That was when he was director of the Congressional Budget Office and the two government-backed mortgage financiers had just been seized by the Treasury Department.
The White House is already forecasting a $1.3 trillion budget deficit for 2011, which is about $3 of spending for every $2 of government receipts. By all outward appearances, it seems Obama and his budget wizards decided that including the liabilities at Fannie and Freddie would be too much reality for the world to handle. So they left the companies out, in a trick worthy of Enron’s playbook, except not quite so hidden.
New Beginning
While the president had nothing to do with the mortgage zombies’ collapse, this was supposed to be the administration that, in his words, would put an end to “the era of irresponsibility in Washington.” Instead, he has provided us a new beginning.
Fannie and Freddie aren’t merely wards of the state. Practically speaking, they are the entire U.S. housing market. Their liabilities are the government’s liabilities. As Orszag said at a Sept. 9, 2008, news conference, two days after Fannie and Freddie were seized: “The degree of control exercised by the federal government over these entities is so strong that the best treatment is to incorporate them into the federal budget.”
That control is stronger today. Congress and the Treasury have given the companies a blank check to blow through whatever taxpayer money is necessary to keep the U.S. housing market afloat. Anyone buying large quantities of U.S. government bonds knows these liabilities exist. So why pretend they don’t?
Making Fudge
Obama’s White House didn’t invent this kind of fudging. President George W. Bush, for example, kept most war costs out of the budget. Obama’s proposal shows about $289 billion of war costs for 2010 and 2011, plus a $50 billion placeholder estimate for each year after that. Those dollars are small compared with the numbers at Fannie and Freddie, though.
Without federal backing, the mortgage guarantees issued by Fannie and Freddie might not be worth much. In that case, the $973 billion of mortgage-backed securities held by the Federal Reserve would be worth substantially less, rendering its $52 billion capital cushion illusory. Of course, it’s ridiculous to think the government would let this happen.
Excluding Fannie and Freddie, the national debt held by the public is about $7.9 trillion. With them, it exceeds last year’s $13.2 trillion gross domestic product. Even the geniuses at Moody’s Investors Service are warning that the country’s AAA rating might not last. No country can owe more than its yearly productive output for long without giving up its accustomed lifestyle and influence. (emphasis mine)
Catching On
The nation’s debt has become so immense that it’s corroding the government’s fundamental relationship with its own people. Put yourself in the shoes of a young couple thinking of buying their first home. The government needs folks like them to buy into the market to keep demand for houses up.
Yet without all the trillions of dollars of subsidies the government has pumped into housing, home prices would get creamed even worse than they already have, spurring greater loan defaults and saddling the Treasury with ever-higher costs from the guarantees Fannie and Freddie sold. What’s sickening is that the government can’t afford the subsidies. Suddenly, that $8,000 tax credit for first-time homebuyers looks like a nasty teaser aimed at sucking America’s newlyweds into a giant Ponzi scheme.
Worst of all is the example the government is setting for its citizenry. There still have been no indictments of senior executives at any of the big financial institutions that cratered in 2008 while sporting pristine balance sheets. No wonder. The government lacks moral standing to prosecute crimes such as accounting fraud when its own books lack integrity.
And how does Orszag explain his about-face on including the government-sponsored enterprises in the federal budget? Here’s the response I got in an e-mail from Kenneth Baer, a spokesman for the White House Office of Management and Budget: “The relationship between the GSEs and the federal government is in flux. Until it is settled, it would be too disruptive to change how they are accounted for in the budget.”
That didn’t answer my question. (Are we supposed to believe the relationship wasn’t “in flux” in September 2008 after Fannie and Freddie got seized?) So I asked again. Baer replied: “Our statement is our statement.”
It speaks volumes, too, confirming what we otherwise could only surmise: They don’t have a good explanation.
Have you installed your bucket next to your desk yet?
For more than a year, the government pulled out the stops to revive home buying by driving down mortgage rates.
Now, whether the housing market is ready or not, the government is pulling out.
The wind-down of federal support for mortgage rates, set to end in two months, is a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama‘s efforts to get the economy on track.
Keeping the mortgage rates at historic lows, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said. Though the policy did not attract as much attention as rescue efforts to bail out banks, it helped revitalize home buying in some parts of the country and put money in the pockets of millions of homeowners who were able to refinance into lower monthly payments, the officials added.
Have they delayed the correction, and are we looking at whiplash in March?
I have been watching the market fall over 400 points this week because of steps that Obama and the socialist dems are taking in the District of Criminals with the bank limits. Now Barney Frank is pushing to abolish Fannie and Freddie and replace it with something else; not quite sure what that’s going to be though. That’s true leadership; once again talking about hope and change without a freakin’ plan.
Is anybody else besides me thinking that the guy that was involved in growing Fannie and Freddie to a point where they are threatening the nation’s stability should not be involved in creating something else to replace his mess?
“The companies now 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.”
Let that sink in for a minute….and Barney, and the Progressive Socialist Democratic congress are about to ‘do something’ about $5 TRILLION in U.S. Residential Debt. Breathe! Breathe!
Jan. 22 (Bloomberg) — Representative Barney Frank, whose committee oversees Fannie Mae and Freddie Mac, said he will push to do away with the companies in favor of a different model for U.S. mortgage financing.
“The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said at a hearing in Washington today. “That’s the approach, rather than a piecemeal one.”
The companies, the largest sources of money for U.S. home loans, were seized by regulators almost 17 months ago because of their risk of failing and have since survived on $110.6 billion in taxpayer-funded aid. Frank said Congress also needs to figure out what to do with the remaining shareholders in Fannie Mae and Freddie Mac as well as investors in the companies’ $5.4 trillion in mortgage bonds and $1.7 trillion in unsecured corporate debt.
“That will be one of the things we will be talking about,” Frank told reporters after the hearing. “The stockholders were of course already pretty much beaten up.”
The U.S. Treasury Department took an 80 percent equity stake in each company as part of the government’s September 2008 takeover, which wiped out the majority of common and preferred share values. Fannie Mae common shares, which peaked at $87.81 in December 2000, fell today 6 cents, or 5.6 percent, to $1.01 at 1:49 p.m. in New York Stock Exchange composite trading. Freddie Mac, which reached an all-time high of $73.70 in December 2004, dropped 9 cents, or 6.9 percent, to $1.22.
Housing Finance
Washington-based Fannie Mae, which dates back to the 1930s, and McLean, Virginia-based Freddie Mac, started in 1970, were chartered by the government primarily to lower the cost of homeownership. They buy mortgages from lenders, freeing up cash at banks to make more loans. They make money by financing mortgage-asset purchases with low-cost debt and on guarantees of home-loan securities they create out of loans from lenders.
The companies now 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.
Congress hasn’t made any decisions on how to restructure the U.S. home-loan market and will hold hearings before proposing any change, Frank said.
Market Function
“We’re going to look at the whole question of housing finance,” Frank said. “Sorting out the function of promoting liquidity in the market, and also the secondary market in general but then also doing some kind of subsidy for affordability.”
“I don’t know anybody who thinks Fannie and Freddie should continue,” he said.
Mortgage investors “shrugged off the news” today, said Nicholas Strand, a mortgage-bond analyst at Barclays Capital in New York. As Congress begins debating the issue in earnest this year, he said “you might see some concern by mortgage investors reflected in the pricing, but you’re not seeing that today.”
Fannie Mae and Freddie Mac have been run for more than 40 years as shareholder-owned companies that also have a federally chartered mission to promote the housing market. Those dual mandates have collided and contributed to the companies’ failure, Federal Deposit Insurance Corp. Chairman Sheila Bair said in a December interview.
I know Barney’s statement comforts all of us and helps us to sleep at night in the knowledge that our government (being run by radical leftists) owns somewhere around 50% of the homes in the country.
Mortgage giants Fannie Mae and Freddie Mac are now basically a “public policy instrument” of the government, Rep. Barney Frank (D-Mass.) suggested Tuesday.
Frank, the chairman of the House Financial Services Committee, asserted that the companies, which were taken over by the U.S. in September 2008, have become an extension of the government’s policy-making tools.
“Remember now that Fannie and Freddie have been converted,” Frank said during an appearance on CNBC. “Part of the losses of Fannie and Freddie are that since the housing collapse, Fannie Mae and Freddie Mac have become a kind of public utility.”
Frank made that claim in response to reports that the government may lose as much as $400 billion from its conservatorship of Fannie and Freddie, assistance that was made available when the home loan companies were put on the brink of collapse due to the subprime mortgage crisis.
The powers that be have not learned the lesson of the collapse they caused 18 months ago and are hell bent on not only repeating it, but making it even worse. The level of current taxpayer commitment to saving these two institutions is $3800 per household with that amount expected to rise if the Treasury continues on it’s current course.
Glenn covers the un-Constitutionality of the healthcare bill as it is being discussed behind Harry’s closed doors, and how the framework for european socialism is being set up right now with this bill, and who wins because of it. Don’t believe it? Just check out FDR’s 2nd Bill of Rights and how much like the USSR’s Constitution it is.
Glenn has a strong message for all Americans that believe in the Constitution and the parameters for government that were set up with it’s passage.
But wait, we have more….the $800 Billion that Fannie and Freddie need before the end of the year, and how the FDIC is ramping up for something big next year. (Like the rest of the home mortgages that are going to reset in the next 3 years, or the collapse of the commercial real estate bubble and the some 2500 banks that will probably fail when those two events happen?)
Part 2:
Part 3, The differences in the polls from Fox to CNN, and the lefts’ reaction to this healthcare bill:
The extremists who control the Republican Party have engaged in one of the most implausible masquerades in history by trying to identify themselves with the American Colonials who revolted against British rule.
In fact, as I prepare to go to the floor of the House this week to defend a package of tough financial reforms and consumer and investor protections, I confront a hostile, virtually unanimous Republican Party, which has a major characteristic in common with a different set of eighteenth century figures – the kings of France. When the French monarchy was restored to power in the 19th century, it was said that “The Bourbons have forgotten nothing because they learned nothing.”
Current House Republicans now oppose financial regulation because they have learned nothing from the current economic crisis.
It is time to stand up against them and we need your help now.
Put Main Street First: Contribute Today
The Republicans have opposed virtually every proposal we have put forward to prevent another financial meltdown. They have fought bitterly against the establishment of a consumer financial protection agency; they have blocked efforts to restrict executive compensation; they are against regulation of derivatives, and they have opposed efforts to restrain predatory lending.
But their opposition to any serious financial regulation has some substantial benefits to Republicans in the form of campaign contributions from institutions which want to be able to continue their financial manipulations unimpeded.
I ask your financial support for the Democratic Congressional Campaign Committee, so that Members who vote in favor of tough financial regulation will know that we will stand with them when they are attacked by candidates backed by powerful defenders of the status quo.
Please consider contributing $5, $10 or more today to the DCCC’s Main Street Democratic Fund to help support Democrats who put Main Street first. Your gift will be matched by House Democrats 2-to-1.
There is so much at stake. The time to help is now.
Thank you,
Barney Frank
This coming from the guy that said Fannie and Freddie were fine, and who was one of the people that gave us the expanded Community Reinvestment Act which forced the banks to give ninja loans to people without jobs. I am glad to know that we are now extremists and even though not registered as republicans, we must therefore be republicans because we espouse the founders’ rules.
Barney Frank’s financial regulatory reform is just another plank in the Cloward-Piven Strategy.
This is going to seem like a really boring post, but somebody besides Market Ticker has to keep track of our money being torched right before our eyes (and against our will).
In all the hubbub of House Call rallies, stealth healthcare votes at 11:15pm on a Saturday night, Barney Frank being present when his partner was arrested on pot charges, and the kenyan communist the pResident insulting the families and the memories of the islamic jihadist murdered soldiers at Ft. Hood, y’all might want to know that the people that want to run your healthcare delivery system with 118 new agencies are still backing the two mortgage lenders and guarantors who just lost $25.2 Billion of our money and now want more.
NEW YORK (Reuters) – Freddie Mac (NYSE:FRE – News; NYSE:FRE – News), the second largest provider of U.S. residential mortgage funding, on Friday posted a loss of $5 billion in the third quarter and predicted it would need more government support amid a “prolonged deterioration” in housing.
Increases in the value of securities Freddie Mac held over the period helped buoy its net worth, however, erasing its need to tap government funds for a second straight quarter to stay solvent while continuing to buy and guarantee home loans.
Including a $1.3 billion dividend payment on senior preferred stock bought by the Treasury in previous quarters, Freddie Mac’s third-quarter loss increases to $6.3 billion.
The home funding company’s loss comes amid a rise in provisions for credit losses to $7.6 billion in the quarter, up 46 percent compared with the previous quarter, as delinquencies worsened on loans it guarantees. Provisions will remain high this quarter, it added.
“I would say we are just beginning to see the impact of the chargeoffs on their guarantee book,” said Janaki Rao, vice president of mortgage research at Morgan Stanley in New York.
Its larger rival Fannie Mae (NYSE:FNM – News; NYSE:FNM – News) on Thursday said it would need $15 billion from the U.S. Treasury after a whopping $18.9 billion third-quarter loss.
Results at Freddie Mac and Fannie Mae are widely watched as a barometer of the U.S. housing market since they own or back nearly half of outstanding mortgages. (emphasis mine)
The losses have presented a dilemma to Congress as it wants to protect taxpayers’ money but is also counting on the companies to undertake foreclosure prevention efforts which are significantly adding to expenses.
If Congress, and in this case, the Democrats, wanted to protect our money, they would not be giving it away in tankerfuls to every tom, dick, and peggy the moocher.
In order to ease the terms of loans under the Obama administration’s Making Home Affordable refinancing program, the companies must buy the mortgages out of securities, and write down their value. Seeking alternatives to foreclosures also means bad loans sit on their books longer.
This is where Deed-To-Lease from Fannie Mae comes in. The government is about to become your landlord and take care of all those pesky household maintenance issues right alongside your gall bladder operation. Lovely.
Despite signs of recovery in home sales and prices, rising delinquencies and unemployment levels mean the housing market is still fragile, Freddie said. High unemployment, foreclosures and excess inventory will impede the recovery “for some time” and push house prices lower, the company said.
Could it possibly be the rising unemployment, now at 10.2%, has something to do with rising delinquencies?
This means that Freddie Mac’s survival will continue to depend on support from the government, which forced the company and Fannie Mae into conservatorship in September 2008.
Freddie Mac has taken $51.7 billion since then while Fannie Mae’s draw will rise to $60.9 billion.
What’s $112.6 Billion compared to Nancy Pelosi’s red crayon math which states that the new healthcare bill will only cost $894 Billion? We all know it is going to be more like $15 TRILLION.
To close on a lighter note; the Dems just hanged themselves with that House healthcare fiasco.
I just do not have the financial background to completely understand the incestuous nature of the different government agencies and their connection to each other and Wall Street, nor do I have the time to educate myself on the various workings of saleable tax credits, but I do know that after reading the following article, I am 100% sure that turning any portion of healthcare over to this government would be SUICIDE.
“Fannie Mae lost $37.9 billion in the first six months of 2009.”
Keep calling and emailing your non-reps. and remind them of Fannie and Freddie! Then, if you can, make sure you are on the Capitol Steps on Thursday, November 5th at noon to meet Michelle Bachmann and look your non-reps. in the eye while you tell them that what they are doing is un-Constitutional, borders on traitorous behavior, and will, at the very least, get them dethroned and derailed from the piggie trough.
Goldman Sachs Group Inc. is in talks to buy millions of dollars of tax credits from government-controlled mortgage giant Fannie Mae, but the potential deal is running into opposition from the U.S. Treasury, which could block the deal.
A sale would bring some needed financial respite to Fannie Mae. But the administration is leery about approving a deal that would help Goldman reduce its tax bill, given the animus held by many lawmakers toward big Wall Street firms in general and Goldman in particular.
The Obama administration is looking at the deal with a critical eye and could block it. Goldman, meanwhile, is hopeful it could win approval this week.
“Treasury is reviewing and will not let it proceed unless it is clearly in the taxpayers’ interest,” spokesman Andrew Williams said.
Fannie Mae and its regulator, the Federal Housing Finance Agency, declined to comment.
“Fannie Mae is owned and controlled by the federal government,” said Goldman Sachs spokesman Michael DuVally, who wouldn’t confirm the company was in talks with Fannie about the credits. “The only basis on which approval for any transaction would be given would be if it was clearly in the taxpayers’ best interest.”
Precise details of the deal couldn’t be learned. Some on Wall Street think Goldman could buy $1 billion of the tax credits, which would allow the bank to offset a portion of its profit. It is unclear how much of a discount Goldman is offering to pay. One person familiar with the potential transaction said Goldman could line up other investors for the deal as well.
Nearly every major business decision at Fannie Mae and Freddie Mac is vetted or directed by the government. Officials at both firms have complained about their contradictory missions — they are at once private companies and tools of public policy.
The Goldman talks are emblematic of these conflicts: A deal that could help Fannie Mae might also be politically unpalatable.
The Treasury Department has purchased $45.9 billion in preferred stock in Fannie Mae since it took over the company last year to pump money into the firm, giving taxpayers a substantial stake in the firm. (emphasis mine.)
The tax credits are an incentive in federal law to spur investments in low-income housing. The law allows investors to receive tax credits for financing qualified housing developments. These credits tend to be drawn out over periods such as 10 years, and are attractive to companies that know they will be profitable during that span.
Fannie Mae, for its part, would be able to unload credits that are weighing on its balance sheet and forcing it to take losses. Selling them would bring earnings into the firm that might offset the amount of money Fannie Mae has to borrow from the Treasury Department. It could also help free up Fannie Mae’s balance sheet so the company can finance more housing loans.
The Federal Reserve waived normal rules to allow Goldman and Morgan Stanley to quickly become bank holding companies last year, protecting them from some of the financial-market trauma that befell Bear Stearns and Lehman Brothers. The government injected $10 billion into Goldman through the Troubled Asset Relief Program. The bank was also helped by the bailout of American International Group Inc., through contracts Goldman had with the giant insurer.
The Treasury has invested a combined $96 billion in Fannie Mae and Freddie Mac since the companies were taken over in September 2008, and it is unclear when either company might be able to repay any of the money. Fannie Mae lost $37.9 billion in the first six months of 2009.
