Sunday, May 15, 2011

Fannie Mae Requests Another $8.5 Billion

Mortgage giant Fannie Mae has reportedly asked the U.S. government for an additional $8.5 billion in taxpayer assistance after declining home prices led to more defaults on home loans it guaranteed. The government-controlled entity said it lost $8.7 billion in the first three months of 2011, leading it to request 3 times the federal aid it asked for in the previous quarter.

The total cost to taxpayers of keeping Fannie Mae from collapse in now nearing $100 billion, the most expensive bailout price tag of a single company in U.S history. Combined with bailout funds extended to Fannie's cousin, Freddie Mac, the government expects the rescue of the companies so key to the nation's mortgage industry to eventually reach somewhere close to $259 billion, money the companies are using to cover losses from bad loans originated in the midst of the housing boom.

U.S. home prices dipped 1.8 percent on average in the three months ended March 31st, leading to thousands of homeowners abandoning their properties when the values dropped to less than what they owed on their mortgages. Fannie said that the bulk of its losses last quarter were related to loans made before 2009, adding that it fully expects to make money on loans it has acquired since January 2010.

Fannie and Freddie came perilously close to collapsing from mounting losses on loans they purchased between 2005 and 2008. After federal bailout funds kept them from failing, the two companies were placed under government conservatorship, and lending standards have tightened considerably to prevent future losses of that magnitude. Fannie and Freddie purchase home loans from the banks and other lenders, then package those loans into bonds with a guarantee against default and sell them to investors around the globe.

When property value fall, homeowners default, whther because they can't afford payments or because the home's value drops below the outstanding balance on the loan. Because of the guarantees, Fannie and Freddie must pay for the losses associated with these defaults. Washington, D.C.-based Fannie and McLean, Virginia-based Freddie currently own or guarantee about half of all U.S mortgages. These million home loans have a combined value of over $5 trillion. Throw in other federal agencies like the Federal Housing Authority and the government backed nearly 90 percent of all U.S. mortgages originated over the past twelve months.

Marin Real Estate

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