May 9, 2009 in Business

Fannie Mae calls its financial future dire

Mortgage finance company posts $23.2 billion loss
Alan Zibel Associated Press
 

Why they’re key

Fannie Mae and Freddie Mac play a vital role in the mortgage market by purchasing loans from banks and selling them to investors.

Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all U.S home mortgages.

The two companies lowered their standards for borrowers during the real estate boom and are reeling from the bust. Worse still, the recession is causing once reliable homeowners with good credit to default.

WASHINGTON – Fannie Mae issued a grave warning about its future on Friday, saying it needs $19 billion in additional government aid as job losses grow and risky loans made during the housing boom go bad at an unnerving pace.

The mortgage finance company, which already got a $15 billion government bailout in March, warned it may need even more money and won’t be profitable for the foreseeable future.

In a regulatory filing the company said “there is significant uncertainty as to our long-term financial sustainability.” Even more government aid, it added, “may not be sufficient to keep us in a solvent condition.”

Fannie Mae posted a quarterly loss of $23.2 billion, or $4.09 per share. That compares with a loss of $2.5 billion, or $2.57 a share, in the year-ago period.

The government, which seized control of Fannie Mae and its sibling Freddie Mac last September, has already spent about $60 billion to prop up the two companies. Fannie Mae’s request Friday brings the total to $79 billion. Freddie Mac is expected to release its first-quarter results next week.

The Obama administration estimates the taxpayer bill for Fannie and Freddie will hit $147 billion out of a potential $400 billion by the end of September 2010.

But some analysts think that figure is optimistic, especially as Fannie and Freddie are called upon to put in place the government’s plans to refinance or modify up to 9 million mortgages.

While using Fannie and Freddie for that purpose should help stabilize the real estate market, “that just means that their losses will be even more,” potentially exceeding the government’s $400 billion lifeline, said Peter Wallison, a senior fellow at the American Enterprise Institute.

James Lockhart, the head regulator for Fannie and Freddie, said, “Anything that we can do to stabilize the mortgage market will be to the long-term economic good of the two companies.”

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