Fannie and Freddie Need Billions to Stay Afloat

January 26, 2009 No Comments »


Government mortgage financiers Fannie Mae and Freddie Mac may need billions more in capital to stay afloat, according to a Reuters report.

Last Friday, Freddie Mac said it may request up to $35 billion from the Treasury in the form of senior preferred stock, while sister Fannie may need another $5-$10 billion.

Freddie has seen delinquencies surge as the value of its mortgage securities continues to dwindle, prompting the staggering request.

In December, Freddie’s single-family delinquency rate jumped to 1.72 percent, up from 1.52 percent in November and 0.65 percent a year earlier.

Meanwhile, Fannie apparently needs another $5-$10 billion just to meet its net worth requirement as of December 31, according to Barclays Capital analysts in New York.

The pair own or guarantee about half of all outstanding residential mortgage loans in the United States and have been one of the few funding sources since the mortgage crisis took hold.

Both were taken into conservatorship in early September after announcing record losses, shifting their focus from shareholder return to housing market and broader economy support.

Another area of concern is the FHA, which seems to be heading towards a similar fate, thanks to its recent heightened role in the mortgage market.

As of September 2008, the government agency saw its market share increase to a whopping 21.13 percent of all loan origination volume, up from just 6.35 percent in October 2007.

The FHA has never relied on appropriations to operate in its 75-year history, but that streak could soon come to an end.

(photo: gaetanlee)

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