Fannie Mae asking for $2.5 billion in new federal aid; posts
$3.4 billion loss for quarter
Government-controlled mortgage buyer Fannie Mae is asking for $2.5
billion in additional federal aid after posting a narrower loss in
the third quarter.
Fannie Mae said Friday it lost $3.46 billion, or 61 cents a share,
in the July-September quarter. That takes into account $2.1 billion
in dividend payments to the Treasury Department. It compares with a
loss of $19.8 billion, or $3.47 a share, in the third quarter of
The government rescued Washington-based Fannie Mae and sibling
company Freddie Mac about two years ago and it estimates that will
cost taxpayers up to $259 billion. That's nearly twice the $133.4
billion Fannie and Freddie are in line to receive from taxpayers so
far and would make it the most expensive bailout of the financial
The $2.5 billion in additional aid that Fannie is asking for
compares with a request for $1.5 billion in the second quarter.
Fannie and Freddie together have repaid $16.7 billion as dividends
to the Treasury Department.
Fannie Mae said it was likely that the market disarray and
suspension of foreclosures due to big lenders' problems with flawed
documents will have a negative impact on the delinquency rates of
its loans, its expenses and foreclosure timelines. However, the
company said, "we cannot yet predict the extent of its impact."
Data released Friday by the National Association of Realtors showed
that the number of people who signed contracts to buy homes fell in
September after two months of gains -- possible fallout from the
foreclosure suspensions that have disrupted the housing market.
Analysts said some of the weakness in September probably reflected
disruptions caused by banks' moratoriums on tens of thousands of
Fannie's chief executive said the latest results reflect ongoing
efforts to contain losses from the high-risk mortgages it bought
from 2005 to 2008 and to build up new, more profitable loan
business with tighter lending standards.
McLean, Va.-based Freddie reported Wednesday that it managed a
narrower loss of $4.1 billion for the third quarter and asked for
an additional $100 million in federal aid -- far less than the $1.8
billion it sought in the second quarter. But while the slimmer
loss, and recent glimmerings such as a slowing rate of new soured
loans coming onto Freddie's books, may be positive signs, they
don't spell the end of the company's travails, experts say.
The two mortgage giants have been hit by massive losses on risky
mortgages purchased from 2005 through 2008. The companies have
tightened their lending standards after those loans started to go
bad, and default rates on new loans are far lower.
The housing market, however, remains a huge challenge. High
unemployment, tepid economic growth, tight credit and uncertainty
about home prices have kept people from buying.
Add to that the uncertainty stemming from allegations that big
lenders used flawed foreclosure documents to seize millions of
homes, a controversy that could put added scrutiny on Fannie and
Freddie and bring fresh losses for them.
Fannie and Freddie used some of the same law firms that are accused
of processing foreclosure files with flawed documents. They are
revoking thousands of foreclosure cases from one Florida law firm
which is under investigation for falsifying documents used to
Several major banks have been accused of similar conduct. If the
banks can't resolve their foreclosure problems and are barred from
seizing many homes, Fannie and Freddie could absorb huge losses on
loans they own or guarantee. That's because they would no longer be
able to recover anything on loans that have gone bad.
Fannie and Freddie buy up home loans from lenders, bundle them
together into securities with a guarantee against default and sell
them to investors worldwide. They own or guarantee about half of
all U.S. mortgages, or nearly 31 million home loans worth more than
Fannie Mae reported its earnings three days after midterm elections
in which criticism of the government's financial bailouts had
figured prominently in many races. Fannie and Freddie have many
critics, especially among Republican lawmakers whose party gained
control of the House in Tuesday's elections.
Over the next year, lawmakers plan to review the nation's
mortgage-lending system and consider a potential replacement for
Fannie and Freddie. The financial overhaul signed by President
Barack Obama in July didn't address that issue, despite protests
from Republicans that it was incomplete without such a plan.
An analysis issued Thursday by Standard & Poor's found the
total eventual cost to taxpayers of rescuing Fannie and Freddie and
funding new entities to replace them could reach $685 billion.
Written by: Marcy Gordon, AP Business Writer