Fannie Mae seeks $8.4 billion from govt after loss

WASHINGTON/NEW YORK Mon May 10, 2010 3:42pm EDT

The headquarters of mortgage lender Fannie Mae is shown in Washington September 8, 2008. REUTERS/Jason Reed

The headquarters of mortgage lender Fannie Mae is shown in Washington September 8, 2008.

Credit: Reuters/Jason Reed

WASHINGTON/NEW YORK (Reuters) - Fannie Mae, the largest U.S. residential mortgage funds provider, on Monday asked the government for an additional $8.4 billion after the company lost $13.1 billion in the first quarter.

Including the latest request, Fannie Mae will have received more than $84.6 billion from the government, and the firm said it saw no end in sight to federal assistance.

The announcement comes less than a week after smaller mortgage finance company Freddie Mac, said it would need $10.6 billion in government funds after losing $8 billion in the first quarter.

The U.S. Treasury took control of the two entities at the height of the financial crisis in 2008 as mortgage losses mounted. The two firms have now tapped more than $145 billion in assistance from Uncle Sam's unlimited credit line.

Housing analyst Rajiv Setia of Barclays Capital said Fannie Mae is likely to draw another $40 billion to $50 billion from the government.

The plan to put them into conservatorship was meant to be temporary, but more than a year and a half later, Treasury Secretary Timothy Geithner has only just begun the process of figuring out how to overhaul the U.S. housing finance system.

The company warned of "significant uncertainty as to our long-term financial sustainability" as it expects the continued weak housing market to keep default rates and credit-related costs high.

The need for more government money was expected and is unlikely to play a significant role in the debate on Capitol Hill over the future of the two firms.

A trio of senior Republican senators want to require the government to relinquish its control of Fannie and Freddie within two years.

Senators Richard Shelby of Alabama, John McCain of Arizona and Judd Gregg of New Hampshire want to add their proposal to a broader debate on Wall Street regulation. The Senate is expected to consider their amendment on Tuesday, though it is not expected to garner enough votes for passage.

The first-quarter net loss included a $1.5 billion dividend on its senior preferred stock held by the Treasury Department. The Obama administration on December 24 pledged to backstop all losses for the two firms through 2012.

The quarterly loss was smaller than the total $16.3 billion loss reported in the fourth quarter.

Fannie Mae said federal aid is helping keep the company solvent, but the dividends payments it is incurring are substantial.

"Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future," the company said.

Because of current trends in housing and financial markets, Fannie Mae expects to continue having a net worth deficit in future periods and to need to tap more funding from the Treasury.

"Promoting sustainable homeownership and maintaining ready access to liquidity are our guiding principles in serving the residential markets," said Michael Williams, the firm's chief executive.

The government has relied heavily on both companies, which buy mortgages from lenders to stimulate more lending, to stabilize the housing market.

(Editing by Padraic Cassidy)

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Comments (16)
LKC3 wrote:
you knew it was going to be bad when they lifted the liability caps for Fannie and Freddie on christmas eve. In 2005 Obama and other democrats had an opportunity to restrict fannie and freddie but they did not do it. You will not be hearing them say they messed up though.

May 10, 2010 9:16am EDT  --  Report as abuse
jwws9999 wrote:
in 2005, the republicans controlled all 3 branches of the government, and Bush campaigned on record homeownership all the while he was outsourcing the economy to china and letting the banks run amok. but nice try

May 10, 2010 9:27am EDT  --  Report as abuse
GratefulEd wrote:
yeah this “crisis” started in 2005 right you guys?
idiots…
I guess it has nothing to do with basing our entire economic system on DEBT. Only a fool, or fools would do something that stupid, oh…
Well here we are some 100 years later, and the banks are running everything.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. ”
Henry Ford
“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them [the banks], will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”
Thomas Jefferson

May 10, 2010 9:47am EDT  --  Report as abuse
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