Saturday, May 7, 2011
Fannie Bleeds anew as Housing Falters
Tucked in the corner of the Wall Street Journal is a very concerning story...
AP- Fannie Mae reported a net loss of $6.5 BILLION for the first quarter as a weakening housing market dashed hoped that the company had stabilized.
Fannie said Friday it would ASK THE GOVERNMENT FOR a fresh TAXPAYER infusion of $6.2 billion after paying dividends to the Treasury. The loss follows net income of $73 million during the previous quarter.
Fannie's loss as it increased its loan loss reserves after it REVISED DOWN ITS HOME PRICE FORECAST for 2011, and took bigger than expected losses on the sale of foreclosed properties. The mortgage finance giant booked $11 Billion in credit related expenses, up from $4.3 billion last quarter.
"Right now, we're not seeing a lot of good thing in the residential real estate markets," said David Hisey, acting chief financial officer for Fannie Mae.
Home prices declines pose a big risk to Fannie and its smaller sibling Freddie Mac because the firms could take steeper losses on a rising number of foreclosed homes that must be resold. Fannie and Freddie owned 218,000 homes at the end of March, a 33% increase from a year ago.
Weitz - did you catch that?...they own 218,000 homes - there is that shadow inventory I always about. This is a problem that will be a drag on the market for years.
The rising losses came despite a decline in the share of single family loans that were 90 days or more delinquent. Those fell to 4.27% at the end of the March, down from 4,48% at the end of last year. Fannie had around $206 billion in delinquent loans on its books, "so with that much exposure, if you just have a little bit of negative things happening, it can have a big impact," said Mr. Hisey.
Fannie's report comes days after Freddie Mac reported net income of $676 million for the first quarter.
It is clearly too soon to say that they've turned a corner," said Jim Vogel, an analyst at FTN Financial.
The federal government has committed unlimited sums to prop the companies unlimited sums sums to prop the companies up and keep mortgage markets from collapsing. So far, taxpayers are on the hook for around $138 billion, with $86 billion for Fannie and $52 billion for Freddie.
The government receives preferred shares that pay a 10% dividend in exchange. At the current rate, Fannie must pay the government $2.3 billion each quarter. Fannie has posed losses for 14 of the past 15 quarters.
Weitz - the lunacy of Freddie of Frannie is mind-boggling. I have a few thoughts on the issue that you won't hear in most media:
1) All this talk by Congress about repealing Fannie and Freddie is insincere and they know it. Simply put, there is no way that the government can do away with Fannie and Freddie as they guarantee over 90% of all new loans issued on residential mortgages. Without this guarantee, the mortgage market would unquestionably collapse.
2) Fannie and Freddie have implicitly bailed out the banks (in addition to the other government programs like TARP, TALF, etc.) This essentially has put the losses faced by the banks on the shoulders of taxpayers as we are ultimately responsible for all these losses as they continue to incur quarter after quarter.
3) Please explain to me how this 'dividend' paid back to treasury makes sense. Let me get this straight, Fannie and Freddie pays the Treasury a dividend and then the Treasury turns around and writes a check to keep Fannie and Freddie alive. Skeptically, I think it allows them to 'tweak' their books for accounting purposes.
3) As I've said before- our government officials need to pick either pure capitalism or pure socialism. This quasi- capitalist system we have favors a hand few of those in elite positions while everyone else suffers. If we want to be a true capitalist society, we have to let Fannie and Freddie fail and let the system reset.
For more information on your options in Real Estate, Bankruptcy and Tax, consider contacting a Seattle Foreclosure Attorney.
Weitz Law Firm, PLLC
520 Kirkland Ave
Kirkland, WA 98033
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