Fannie, like Freddie, Reports Another Huge Loss and Needs More Cash


The government sponsored entities Fannie Mae and Freddie Mac continued to post frighteningly high losses in the first quarter and require gobs more cash from the government. Today, Fannie reported (.pdf) a net loss of $11.5 billion. It will also need an additional $8.4 billion in aid. This comes after Freddie reported a loss of $6.7 billion and said it needs another $10.6 billion from the Treasury last week. There's no end in sight for the pain, but there is an amendment pending in the Senate that seeks to address the GSE problem.

Fannie's $11.5 billion loss was about half the size of its first quarter 2009 loss of $23.2 billion, and a little better than its loss of $15.2 billion in Q4. But it's kind of absurd to treat a smaller loss as good news when it still stands at such a high number.

In fact, the prospects for Fannie's future are anything but bright. Its serious delinquency rate increased to 5.47% at the end of March from 5.38% at the end of December. In the first quarter the agency also saw more foreclosure activity. There were 61,929 properties foreclosed, compared to 47,189 in the fourth quarter. That's an increase of 31%. The firm doesn't see itself making a profit in the "indefinite future."

The cash infusion Fannie needs to cover its first quarter problems will increase its total bailout from Uncle Sam to $85 billion. Freddie's new request from last week raises its tally to $63 billion. That adds up to $148 billion. The size of GSE bailout continues to grow, and to amaze.

Most of Congress has no intention of fixing this problem presently. The financial reform bill currently provides no effort at reforming Fannie and Freddie. Last week, Senator John Ensign (R-NV) proposed an amendment that would have limited the growth of Fannie and Freddie to 3% of GDP. It failed 35-59.

Another amendment introduced last week by Senators John McCain (R-AZ), Richard Shelby (R-AL), and Judd Gregg (R-NH) seeks to go even further and set a timetable on winding down the GSEs. If approved, it:

Establishes a three year period after the end of conservatorship for GSEs to operate under new operating restrictions until government charter expires. Upon charter expiration, provides for a 10 year period through which the creation of a separate holding corporation and a dissolution trust fund for any remaining mortgages or debt obligations held by the GSE.

It also limits the bailouts to $200 billion (a number the GSEs continue to come nearer to hitting) and would require additional oversight. Given the failure of Ensign's less aggressive amendment, it's hard to believe that the wind-down amendment would have a different fate, however. The Obama administration has said it intends to address Fannie and Freddie sometime next year.

(Nav Image Credit: Wikimedia Commons)

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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