Loan Modification

Fannie Mae Continues to Bleed

By Frank Shump

I, like many individuals out there, have a hard time really wrapping my brain around large numbers. This isn?t to say that I can?t do math, just that after a certain denomination, I tend to lose sight of the impact that amount of money can have. So when Fannie Mae recently reported that it lost $23.2 billion in the first quarter of 2009. I largely shrugged it off. If you look at what just one billion dollars looks like, however, you can get a much better grasp of the situation.

So, in the midst of good news glimmers and lower unemployment numbers, why the terrible quarter? Well to be fair it still wasn?t quite as bad as the fourth quarter of 2008 when the firm lost $25.2 billion, but the firm stated that the problems came from “Credit-related expenses, securities impairments and fair value losses” as “persistent deterioration in housing, mortgage, financial and credit markets continued to adversely affect our financial results.”  No kidding?

As you might expect, with Fannie Mae currently operating under a federal conservatorship, the losses have forced the firm to scramble over to the U.S. Treasury with hat in hand. The company has requested an additional $19 billion in capital investment. In addition, Fannie also hinted that the only way for it to survive is dependent upon a continued stream of government funding. That isn?t too surprising, considering that the loss pushed Fannie Mae?s net worth below zero for the second time. The loans and bonds that the company owns have continued to deteriorate even as they try to help struggling homeowners make changes to their mortgage terms.

That is part of the problem. As Fannie Mae helps homeowners modify the mortgages it guarantees, the company?s results get worse. The firm itself stated that ?Future activities that our regulators, other U.S. government agencies or Congress may request or require us to take to support the mortgage market and help borrowers may contribute to further deterioration in our results of operations and financial condition.? That would be a little easier to accept if the initiatives were successfully halting foreclosures, which doesn?t appear to be the case yet. About 803,489 properties received a default or auction notice in the first quarter. It is still too short a time to make an assessment as to whether government modification efforts are having an effect, but in the interim Fannie seems to be endlessly bleeding taxpayer money, and it may need more.

Full post as published by Blown Mortgage on May 08, 2009 (boomark / email).