Following Freddie Mac’s request for aid last week, Fannie Mae released its financial statement for the first quarter of 2010 today, and announced that it lost $13 billion and will need an additional $8.4 billion in taxpayer aid. This is the first request for aid Fannie Mae has made in a year.
The mortgage giant, which was seized by the government in September 2008, has needed more than $84 billion in bailouts to avoid insolvency. Together with Freddie Mac, the total taxpayer bill for bailing out the struggling government sponsored entities (GSEs) is over $145 billion.
It is unclear how much money the GSEs will ultimately need, but the Obama administration has pledged an unlimited amount of capital for the mortgage lenders. The amount of aid previously earmarked for Fannie and Freddie was capped at $400 billion. In its report, Fannie laid the groundwork for future aid requests, saying, “we expect our foreclosures to increase during 2010 as a result of the adverse impact that the weak economy and high unemployment have had and are expected to have on the financial condition of borrowers.”
Fannie and Freddie are integral in promoting lending and keeping borrowing costs low by injecting liquidity into the marketplace. Together they either own or guarantee $5.5 trillion worth of mortgages, accounting for nearly 70 percent of single family mortgages in the United States.
In order to stay competitive with private lenders during the real estate bubble, Fannie and Freddie lowered their underwriting standards and got involved in subprime loans. Defaults on these questionable loans are the genesis of their problems today.
Later in the statement, Fannie Mae questioned the future viability of the company: “given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future. As a result of these factors, there is significant uncertainty as to our long-term financial sustainability.”
Recent Republican-proposed legislation would set in motion the process of removing the companies from government conservatorship, and would seek to reduce the role the mortgage lenders play in the housing market.
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