Fannie Mae and Freddie Mac Could Be Asking for More Help from Government

February 5th, 2009 | Tags: Foreclosure

Analysts are predicting that Fannie Mae and Freddie Mac could be asking the government for help to the tune of $51 billion to enable them to continue operations. The two are the largest mortgage providers in the country holding nearly half of all the mortgages.

In September last year the government took over the controls of Fannie Mae and Freddie Mac following staggering increases in delinquencies and declining values of securities. But adverse performance during the last quarter is now compelling them to seek governmental assistance again.

New losses in the last quarter will hit Freddie Mac the most. It holds a bigger portfolio than Fannie Mae comprising of risky mortgage assets inclusive of sub-prime bonds. Freddie Mac said that it might require another $30 to $35 billion from Treasury as senior preferred stock.Fannie Mae announced that it might put forward a request for $11 to $16 billion because of bad results showing in the last quarter.

The loss reports rolling in underlines the importance the new administration of President Obama must give to put a halt on foreclosures that is causing price of houses to further fall. Until this is halted the economic recession will continue and get worse.

In 2009 Fannie Mae could be seeing more losses than Freddie Mac because of the guarantees on mortgage-backed-securities according analyst Rajiv Setia and his team mates from Barclays Capital, New York. The companies have at hand only a third of the amount they are providing guarantees for.

Strategist Jim Vogel of FTN Financial, Memphis, said, “The questions are the source of the losses and how much is set aside in reserves for future losses. Both will determine, along with further housing performance, the size of the draw at the conclusion of the first quarter.”

There is more trouble ahead for Fannie Mae and Freddie Mac. The proposed legislation of allowing power to the judges of bankruptcy cases to alter mortgage terms is not good news for the mortgage giants. It will negatively impact on the security values. Another $20 billion over the estimate will be added for buying the companies.

Injected money from the Treasury may maintain the operations of Fannie Mae and Freddie Mac for many years as they battle to balance costs and continue to serve the housing sector. Till the take over by the government the duo had been semi-governmental agencies that had benefited from the charters issued by the government but served the interests of the shareholders.