Fannie Mae, the U.S. mortgage buyer currently in the conservatorship of the Federal Housing Finance Agency (FHFA), has requested another $15 billion in state aid following a net loss of nearly $19 billion in the third quarter of the year.
Between them Fannie Mae and rival of sorts Freddie Mac underwrite more than half of the home loans approved in the U.S., with, says
Bloomberg, Fannie Mae owning or guaranteeing in excess of 20 percent of a market worth $12 trillion.
Their role is not to lend directly to home buyers but rather to purchase mortgages from the actual lenders and then sell the mortgages on to investors.
The onset of the global financial crisis in the Summer/Fall of 2008 led to a collapse in the U.S. housing market, leaving both the mortgage giants facing massive losses.
As the
Earth Times reports the federal government stepped in during September of last year and in return for a 79.9-per-cent stake in both Fannie Mae and Freddie Mac agreed to make available $200 billion in capital.
Prior to the latest request for more funds Fannie Mae had already received $44.9 billion in support as it endured losses of $101.6 billion in the preceding eight quarters. The second quarter of 2009 had, for example, resulted in a loss of $14.8 billion for the Washington D.C-based enterprise seen by the U.S. government as essential to the propping up of the country's housing market.
Indeed it has been confirmed that $22 billion worth of expenses incurred in part through buying mortgages out of securities in order to modify loans under the Obama administration's foreclosure prevention plan played a significant part in the losses Fannie Mae posted in Quarter Three.
Freddie Mac, which reported profits for Quarter Two, had, before Fannie Mae asked for an additional $15 billion, received a greater share of the support, some $50.7 billion, that has been provided by the U.S. taxpayer.
Over $110 billion will have been drawn from the $200 billion available in total once Fannie Mae's most recent request has been processed, with one analyst wondering if even more than $200 billion will ultimately be needed if the two mortgage buyers are to continue to function.
Bloomberg quotes Paul Miller, of FBR Capital Markets in Arlington, Virginia, as saying:
They’re going to need that $200 billion in capital, if not more, when this thing’s all said and done
And the eventual fate of Fannie and Freddie is very unclear at the moment. Discussing the intention of the U.S. government to reveal its plans for the mortgage buyers in 2010, Rajiv Setia of Barclays Capital in New York is reported by the
BBC as having said:
It appears evident that they will remain under [government control] indefinitely. There is no way to privatise them in this environment. It could actually be a full decade before something like that happens
Fannie Mae is attempting to complete the sale of $2.6 billion in
low-income housing tax credits, having accumulated $5.2 billion worth of credits in total. Goldman Sachs is reportedly one potential purchaser of those credits, Treasury officials seemingly the final decision makers in respect of such a deal.
There is also the question of $6.1 billion in annual dividend payments, due on its borrowings from the Treasury, for Fannie Mae to consider. Payments that would wipe out any profit the mortgage buyer, originally founded in 1938, might make.
With Fannie Mae and Freddie Mac responsible for approximately 70 percent of all new mortgages agreed this year in the U.S. it seems hard to underestimate their importance to a housing market which appears to be in the early stages of a recovery.
However the true impact of many of the imprudent loans made during the "good times" has not necessarily been felt as yet and there may still be more extremely difficult times ahead for Fannie Mae.
Yesterday Fannie Mae shares closed on the New York Stock Exchange at $1.12. In 2000 those shares were worth $87.81 each.
