« | »

Shocker: Fannie Mae Needs More Money

From a concerned Washington Post:

Aid to Fannie, Freddie May Top Expectations

Firms’ Health Has Worsened During Crisis

By Zachary A. Goldfarb
Friday, November 14, 2008; A01

The first of the Bush administration’s major financial takeovers, the seizure of Fannie Mae and Freddie Mac, is poised to get more expensive and some analysts are warning that it may ultimately cost more than the government has suggested.

Mounting troubles in the financial and housing markets have further undermined the health of the companies in the months since the government seized them in September, making it likely the Treasury will be required to pump billions of dollars into the mortgage-finance giants.

Though not a cent has been spent, some analysts are warning the tab could exceed the $200 billion that the government set aside for capital infusions into the two companies

Under the government’s agreement with the companies, the Treasury is required to inject money in any quarter when the companies’ liabilities exceed their assets, up to $100 billion for each firm…

“Depending on what happens with housing, you could see scenarios where the $100 billion comes into the question,” said Rajiv Setia, an analyst with Barclays Capital. He said McLean-based Freddie Mac may need $40 billion by the end of the year.

On Monday, District-based Fannie Mae reported a whopping $29 billion loss, bringing it close to triggering a government cash injection. Most of that loss was because the company wrote down the value of tax credits it is unlikely to use…

Many analysts consider Freddie Mac to be in worse financial shape and, if it makes the same decision as Fannie Mae regarding tax credits, would report today that it owes billions more in obligations than it has in assets, triggering a government injection of cash.

In addition to pledging capital, the government has offered the companies an unlimited line of credit.

In return for these backstops, Fannie Mae and Freddie Mac each agreed to give the Treasury $1 billion in preferred stock and pay a $100 million a year as a dividend. The companies’ boards also turned over control of the firms to the Federal Housing Finance Agency…

Fannie Mae said this week that home prices are about halfway through their decline. The firm said prices are down 10 percent from their peak in 2006 and likely to fall as much as 19 percent before stabilizing.

There is no certainty that losses will continue to mount at the firms. If the government’s efforts to stimulate the economy succeed and the housing market stabilizes, the companies may require little public money…

The companies could also be put in a more difficult position because the government is pushing them to keep buying mortgages in a weakening economy. The goal is for the firms to help push down mortgage rates by flooding the market with money, which should help put a bottom under housing prices. But that may force them to purchase mortgages given to buyers with declining economic prospects, including possible job losses.

“They’re going to be insuring or buying mortgages that nobody in the private sector wants,” said Peter Schiff, president of Euro Pacific Capital. “The only people who would loan money to Americans right now is the government. Nobody would else do it.”

Fannie Mae and Freddie Mac’s regulator says they are buying only high-quality mortgages.

Finally, the government itself has taken steps that make it more likely Fannie Mae and Freddie Mac will need its cash. The government has introduced several programs to protect debt issued by other institutions, such as banks. Fannie Mae and Freddie Mac lack this explicit federal guarantee and that has made their debt comparatively less attractive to investors, increasing what the companies have to pay to raise capital in private markets.

As a result, some analysts are concerned that Fannie Mae and Freddie Mac may run out of funding…

There is nothing to worry about. Former Freddie Mac board member Rahm Emanuel will make sure these companies prosper.

According to reports, he still have quite a lot of stock incentives.

This article was posted by Steve on Friday, November 14th, 2008. Comments are currently closed.

4 Responses to “Shocker: Fannie Mae Needs More Money”

  1. proreason says:

    “But that may force them to purchase mortgages given to buyers with declining economic prospects, including possible job losses”

    in other words, no change to Barney Fife’s prior policy.

    I just wish they would cut through the crap, and expand the give-away to cars, food, vacations and drugs.

  2. Professor_Repulso says:

    “Obama, who let Sen. John McCain take the blame for the financial crisis that started with Obama’s street advocacy in Chicago in 1992 when he strong-armed local banks to provide risky loans to minorities, threatening to brand the bankers as racists if they did not. Obama, as both a State Senator and a US Senator, worked with Fannie Mae executives to guarantee what would become known as ‘subprime loans,’ creating an industry that both the Clinton and Bush-43 Administrations latched onto in desperation as the US jobs-exports ‘industry’ went into full swing as Detroit moved their plants from the American continent to China. Construction, not factory work, became the number one industry in the United States. Home construction created jobs. But newly-constructed homes needed to be sold.
    “It can honestly be said that Barack Hussein Obama, who strong-armed Illinois banks to provide risky mortgage loans to minority buyers who lacked credit standing, was instrumental in creating the subprime mortgage industry. The loans generated by Obama’s street advocacy in the early 1990s were backed by Fannie Mae. Obama’s advocacy in Illinois became the model for the subprime mortgage industry that was jump-started by Bill Clinton and continued, to its demise, under George W. Bush who ultimately got the blame for its collapse. The pitfall – loaning money to people with credit histories that show they will default on their loans – were concealed by the Congressional Black Caucus and the Democratic leadership which actually believes that people who refuse to work should be granted economic equality paid for by sweat equity of those who slave to provide a better life for their families.”

    J.C. Ryter

  3. paulswigert says:

    This entire problem revolves around the very people that have been given the reigns to fix it and the feeling of knowing with the inability to do anything about it leads me to believe that this country is headed for direct destruction. This fiasco being handed over to BHO and his government do-gooders will surly weaken this country to the brink of possible invasion or total implosion. Either way I am not sure we are strong enough to overcome this debacle. We can not simply print our way out of this mess, something has got to give, so propping up these already failed institutions is plain stupidity, LET THEM FAIL!!!!!!

  4. Professor_Repulso says:

    Very disturbing!
    “The China connection to Goldman Sachs figures prominently in the current crisis. Because China owned $376 billion of Freddie Mac and Fannie Mae paper, it played a big role in the financial crisis, and Treasury Secretary Henry Paulson, with his own personal and financial ties to China, admittedly tried to reassure the Chinese through this process that their investments would be protected. They are being ‘protected’ in the sense that the American taxpayers are now on the hook for these government mortgage companies, which have been nationalized.
    “On top of this, Paulson, a former CEO of Goldman Sachs, made sure, as part of the bailout legislation, that he could bail out Chinese banks holding other troubled U.S. assets.
    “Schiff, who blows the whistle on these schemes, is not very popular in the media, which have been telling us consistently that things would get better after Wall Street was bailed out. But Schiff was on Bloomberg on October 28 talking about how the problems will get worse if we continue to follow the current tax, spend and bailout policies. His basic message is that the U.S. is broke and that the situation will get worse under an Obama Administration because of its commitment to more federal interference and involvement in the economy.
    “Nevertheless, during this discussion, a week before the election, Schiff predicted an Obama victory because ‘nobody is going to vote for four more years of this’ and voters ‘are going to grasp at straws and vote for anybody who promises change.’ But the change is phony, he warned. Obama ‘will put several nails in the coffin,’ he said. ‘We’re going to get more of the same, only worse.'”


    American taxpayers catching it in the butt to bail out our own deadbeats is bad enough. Throwing those Chinese commies into the mix is just too much.

« Front Page | To Top
« | »