HARD DRIVES

Fannie Mae, Freddie Mac Foreclosures Cost Tax Payers Billions

Swamping the nation’s largest mortgage buyer today are the Fannie Mae foreclosures. Fannie Mae reported an $ 11.5 billion loss in the first quarter of 2010. Fannie Mae has been freefalling. 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 Mae and Freddie Mac: 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: Fannie Mae and Freddie Mac are the only loan company in town since 2008, when the mortgage securities froze up. Because Fannie Mae foreclosures are steadily on the rise, no one in Congress has the guts to do anything at this time that could further weaken the housing market.

Fannie and Freddie: politics as usual

Many politicians are still avoiding action on Fannie Mae and Freddie Mac, despite the fact the Senate has 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. Elected officials from both the Republicans and Democrats can’t agree about language dealing with loans and who should be assigned the responsibility to oversee regulations. Democrats are in favor of 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 takes a dive

Fannie Mae and Freddie Mac performed just like any other bank during the housing bubble. The so-selfish two collected $ 3.9 trillion from investors who purchased bundles of mortgages they assembled. Fannie Mae stock soared, for awhile. Fannie Mae and Freddie Mac are publicly traded companies, but investors lost confidence once they got in too deep. Fannie and Freddy threatened to collapse–bring down the nation’s housing market with them. In 2008, the federal government had no choice but to take over Fannie and Freddie in hopes to avert catastrophe.

Fannie Mae stock

The U.S. Treasury has already handed over a total of more than $ 145 billion into the hands of Fannie Mae and Freddie Mac. Meanwhile, Fannie Mae reported a quarterly loss of $ 11.53 billion, or $ 2.29 per diluted share of Fannie Mae stock, according to Medill Chicago. This is good news, considering those losses were $ 23.2 billion and $ 4.09 a share the year before. A loss of $ 1.75 per share had been estimated by analysts. Monday’s report marked the 11th consecutive quarterly loss.

Fannie Mae’s shares traded at about $ 1.05 on Tuesday. Share prices sat at about $ 26.30 two years ago. 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

Because they own or guarantee more than 50 percent of mortgages in the U.S., Fannie and Freddie are losing money. According to the New York Times, the details on the 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. When they sell, Freddie Mac foreclosures lose around 39 percent on a normal basis.

Freddie Mac deals with delinquencies

According to the New York Times, Freddie Mac is also plagued by delinquencies. 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. A lever up from subprime loans, Freddie’s Alt-A book delinquencies totaled 12.84 percent. Delinquencies on mortgages of interest-only were 18.5 percent. Delinquencies on option-adjustable rate loans totaled 19.8 percent.

Fannie and Freddie’s infinite losses

To ensure sufficient fund were available to mortgage lenders, Fannie Mae was created during The Great Depression, then re-chartered in 1968 by Congress as a publicly traded company. Freddie was created for the same reason in 1970. Today, both Fannie and Freddie are caught between a rock and a hard place. When the housing market tanked, Fannie and Freddie began losing billions. The nation’s housing market was made totally dependent on them once the mortgage meltdown occurred. By buying loans from banks and other lenders, Fannie and Freddie exist to support the mortgage market. As the same time, they must work to diminish credit losses so the billions of dollars in taxpayer money they’ve taken do not dry out.

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