Spank That Fannie

This reminds me of the time when I was young and I needed 10 bucks. I went to mom
and asked for 20 (And got it) then went to Dad and asked for twenty (Got five) I'm
wondering if the books are cooked in the opposite direction in the favor of yet again the Servicing giant Fannie Mae. This is called 'Icing the Dollars' or 'Book
Chilling.' I iced the dollars needed from mom and dad to get a larger benefit.

Fannie Mae reported yesterday that it lost $23.2 billion in the first three months of the year as mortgage defaults increasingly spread from risky loans to the far-larger portfolio of loans to borrowers who have been considered safe. Ohhh Waaaa.

The sobering earnings report was a reminder of the far-reaching implications of the government's takeover in September of Fannie Mae and the smaller Freddie Mac. Losses have proved unrelenting; the firms' appetite for tens of billions of dollars in taxpayer aid hasn't subsided; and taxpayer money invested in the companies, analysts said, is probably lost forever because the prospects for repayment are slim.

But the government remains committed to keeping the companies afloat, because it is relying on them to help reverse the continuing slide in the housing market and keep mortgage rates low.

Even as the government bailout of banks appears to be leveling off, the federal rescue of Fannie and Freddie is rapidly growing more expensive. Fannie Mae said that the losses will continue through at least much of the year and that it "therefore will be required to obtain additional funding from the Treasury." Analysts are estimating that the company could need at least $110 billion.

Freddie Mac, which has been in worse financial shape than Fannie Mae and has obtained $45 billion in taxpayer funding, will report earnings in coming days.

Fannie's most recent loss compares with a $2.2 billion loss in the first quarter last year, before the government takeover.

Fannie Mae, of the District, and Freddie Mac, of McLean, have been growing ever more dependent on federal largesse. The Federal Reserve has bought $366 billion of their mortgage investments and $70 billion of their debt, and has pledged to buy hundreds of billions of dollars more of both. The Treasury has pledged $200 billion to each company to keep them solvent and already bought $124 billion of their mortgage investments.


In total, the government has committed about $2 trillion to supporting Fannie and Freddie and buying the securities they issue.

Over the next 10 years, the government's rescue of Fannie Mae and Freddie Mac is expected to cost $389 billion, exceeding the cost of investments in banks and other financial firms by the government's Troubled Assets Relief Program, according to a recent study by Subsidyscope, a project of the Pew Charitable Trusts. The group based its calculations on Congressional Budget Office figures.

The federal government seized Fannie Mae and Freddie Mac last September out of concern that they would collapse and threaten the entire financial system. Since then, the companies have been called on to carry out large parts of the government's plan to spur a housing recovery by modifying mortgages and taking anti-foreclosure steps.

Fannie Mae said these programs are likely to have "a material adverse effect on our business, results of operations and financial condition, including our net worth." But, it said, the program could yield long-term benefits. "If, however, the program is successful in reducing foreclosures and keeping borrowers in their homes, it may benefit the overall housing market and help in reducing our long-term credit losses."

I always love the words 'If However' especially when it comes to my tax dollars.

-Christopher Rockey