Mortgage Giant Needs Another $16 Billion Due to Losses and Foreclosures
As the housing market situation continues to get worse and foreclosures continue to mount, mortgage finance company Fannie Mae said last Monday that it will most likely need $16 billion from government aid.
Last fall, Fannie Mae and sibling company Freddie Mac were seized by federal regulators after tackling with rising foreclosures and increasing losses on house loans they supported during the housing boom. Fannie Mae sent a $29 billion loss during the third quarter, largely because of a $21.4 billion cash charge to decrease the value of tax credits that have become worthless.
The confession made by Fannie Mae came after Freddie Mac revealed last week that it is possible to need about $35 billion in terms of federal support, which is in addition to the $13.8 billion it has received in 2008. Fannie Mae’s estimation of $16 billion may differ materially from the actual amount required since its financial statements for the last quarter of 2008 are currently being organized.
In addition, Fannie Mae’s net worth plummeted to $9.4 billion by the end of September from $44.1 billion as 2007 ended. If that figure becomes negative, the company will be forced to get funding from the Treasury Department.
The mortgage giants were taken over by the federal government during the fall of last year after suffering from considerable losses incurred when they decided to back mortgages during the last housing boom.
Any help for Fannie Mae or Freddie Mac will be officially requested by the Federal Housing Finance Agency, the companies’ federal regulator.
Analysts also assume that the legislation permitting judges in bankruptcy courts to decrease the principle balance of the mortgage or even just the interest will also result to a decrease in mortgage securities value kept by Fannie Mae and Freddie Mac.
If the legislation is approved, it will most likely yield an extra $20 billion that could be used as taxpayer aid, benefiting both companies, which will also decrease foreclosures to 20 percent, according to Credit Suisse analyst Moshe Orenbuch.
President Barack Obama, along with majority of Democrats in the House of Representatives, support the legislation which can also help lower foreclosure, while groups standing up for the lenders have decided to ramp up their lobbyists to put the bill to a stop.
