In an attempt to dig itself out of a deepening hole, Fannie Mae has requested $4.6 billion in additional federal aid. “We think that we have reserved for and recognized substantially all of the credit losses associated with the legacy book,” Chief Financial Officer Susan McFarland said. “We’re very focused on returning to profitability so we don’t have to draw (from Treasury) to cover operating losses.”
Although the nation’s banks seem to be recovering nicely, the same cannot be said for mortgage giants Fannie Mae and Freddie Mac. Writing in Forbes, Steve Schaefer notes that “The mortgage finance giants have taken on a greater share of supporting the U.S. housing market as private players pared back their exposure in recent years, and the result has been billions of losses on the taxpayer dime. Fannie Mae reported booking a $16.9 billion 2011 loss capped off by the loss of $2.4 billion in the 4th quarter. Fannie Mae’s losses are still coming largely from its legacy book of business (from before 2009), which led to $5.5 billion in credit-related expenses tied to declining home prices.
“The black holes of Fannie and Freddie – Fannie’s Q4 report shows it has requested to draw $116.2 billion since being placed under conservatorship Sept. 6, 2008 while paying back $19.9 billion in preferred stock dividends – are the biggest black eyes of the 2008 bailouts. Plenty of critics of the Troubled Asset Relief Program (TARP) have made their voices heard over the years, but at least most of the banks that received TARP injections – the biggest of which went to Bank of America and Citigroup – have paid back the government’s loans and are back to making profits, if modest ones. Even American Intl Group and the automakers that received bailouts – General Motors and Chrysler – have moved beyond needing additional government dollars. Fannie and Freddie, on the other hand, show few signs of becoming anything resembling productive companies until the housing market turns around or the pre-2009 assets are completely wiped off the books or new policies are necessary to encourage new refinancing beyond those currently in place that have had limited impact.”
“While economic factors such as falling home prices and high unemployment produced strong headwinds for our business again in 2011, we continued to grow a very strong new book of business as we have since 2009, “said CEO Michael Williams, who handed in his resignation in January but is still on board while the government-sponsored enterprise (GSE) looks for his replacement.
Bank of America last week announced that it had stopped selling some mortgages to Fannie Mae because of a dispute over requests from the government-run company to buy back defective loans. “If Fannie Mae collects less than the amount it expects from Bank of America, Fannie Mae may be required to seek additional funds from Treasury,” the company said.
Fannie Mae blamed its loss primarily on pre-2009 loans and falling home prices, which pushed up the company’s credit-related expenses. In the 4th quarter of 2010, Fannie Mae posted a slight profit to end a streak of 13 consecutive quarterly losses, though the company was back in the red in the following quarter and each since. The net cost to taxpayers for bailing out Fannie and Freddie stands at more than $152 billion.
During the 4th quarter, Fannie Mae acquired 47,256 single family homes through foreclosure compared with 45,194 in the 3rd quarter. The company disposed of 51,344 REO properties in the quarter, down from 58,297 in the 3rd quarter. As of the end of 2011, Fannie Mae was holding 118,528 REO properties, a reduction from the 122,616 at the end of September and 162,489 on December 31, 2010. The value of the single-family REO was $9.7 billion compared with $11.0 billion at the end of the 3rd quarter and $15.0 billion at the end of 2010. The single family foreclosure rate in the 3rd quarter was 1.13 percent annualized compared with 1.15 for the first three quarters of the year and 1.46 percent for 2010.
Meanwhile, the federal government wants to sell approximately 2,500 distressed properties in eight locations to investors who buy them in bulk and rent them out for a predetermined period. The properties, located in Atlanta, Phoenix, Las Vegas, Los Angeles/Riverside, and three Florida regions, include single-family homes and co-op apartment buildings. “This is another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties, and reduce the supply of REO properties in the marketplace,” said Edward J. DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae.