NOVEMBER 9, 2011
By ALAN ZIBEL
Wall Street Journal
Fannie Mae said it would seek $7.8 billion more in U.S. government assistance after posting a wider loss in the third quarter as the housing market's troubles continued.
The Washington-based mortgage finance company on Tuesday posted a net loss of $5.1 billion in the third quarter, compared with a year-ago loss of $1.3 billion. It was the 16th loss in the past 17 quarters for the company, which nearly failed more three years ago and has been kept on government life support ever since.
The request for aid from the Treasury Department includes $2.5 billion to cover required quarterly dividends paid to the government. It brings the total cost to taxpayers of Fannie Mae's rescue up to more than $94 billion.
Fannie Mae and sibling company Freddie Mac buy home loans and package them into investments, and ensure that investors receive payments even when borrowers default. The cost of those defaults has continued to mount, evidence that the U.S. housing market is still deeply troubled.
"Our results in the third quarter were significantly affected by continued weakness in the housing market and the economy overall," Michael J. Williams, the company's chief executive, said in a statement.
Congress, meanwhile, has made little progress in advancing legislation to determine what should replace the two mortgage companies, though lawmakers in both parties say they should be wound down in the future.
Lawmakers instead have focused lately on the salaries of Fannie and Freddie executives. Sen. Mike Johanns (R., Neb.) on Tuesday introduced a measure to ban federal money from being used to pay bonuses for these executives.
The losses reported Tuesday stem from loans made from 2005 through 2008, while the housing boom turned to bust. By contrast, loans being made since 2009 are expected to be profitable.
While mortgage delinquencies have stopped rising, Freddie and Fannie are now selling tens of thousands of properties that they are taking back through foreclosure, but they are taking bigger losses on those sales due to falling home prices. Fannie Mae owned nearly 123,000 foreclosed properties at the end of September, down from about 136,000 in June.
Fannie's loss was driven in part by a $4.9 billion increase in credit expenses, which the company sets aside to cover losses from bad mortgages and foreclosure-related expenses.
Losses are also rising because Fannie and Freddie are unlikely to be able to recover as much money from mortgage insurance firms, which cover losses on defaults for some borrowers. Last month, state insurance regulators took over PMI Group Inc., one of the nation's largest mortgage-insurance companies.
Fannie said in a Securities and Exchange Commission filing that "while our remaining mortgage insurers have continued to pay claims owed to us, there can be no assurance that they will continue do so given their current financial condition."
Sharp declines in long-term interest rates during the third quarter led Fannie Mae to report an additional $4.5 billion loss on the value of derivatives investments that are used to hedge against swings in interest rates.
The Treasury has pledged unlimited support through the end of next year and up to around $300 billion after that to keep the two mortgage companies afloat and stabilize mortgage markets. The companies are required to make 10% annual dividend payments to the Treasury on the money they receive from the government every quarter.
Including the most recent request for Treasury funds, Fannie Mae has now borrowed $111.6 billion from the government, and paid more than $17 billion back in dividends. Freddie Mac has taken more than $71 billion in aid and paid back around $15 billion. The net cost to the taxpayers for bailing out both stands at $150.6 billion.
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