Fannie Mae sees enough post-2012 taxpayer support

WASHINGTON Wed Oct 12, 2011 4:18pm EDT

A sign in front of the Fannie Mae headquarters is photographed in Washington February 11, 2011.     REUTERS/Molly Riley

A sign in front of the Fannie Mae headquarters is photographed in Washington February 11, 2011.

Credit: Reuters/Molly Riley

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WASHINGTON (Reuters) - Fannie Mae, the largest provider of U.S. residential mortgage funding, will have access to enough public funds to continue operations even after its unlimited taxpayer lifeline expires at the end of next year, its chief executive said in an interview.

Since being seized by the government in 2008 as mortgage losses mounted, Fannie Mae (FNMA.OB) has drawn $104.8 billion in taxpayer aid from the U.S. Treasury, while paying back $14.7 billion in the form of dividends.

The U.S. Treasury, eager to keep the financial crisis from spreading, extended a $200 billion lifeline to both Fannie Mae and its smaller rival, Freddie Mac, when they were placed in government conservatorship in September 2008.

It later said they could have an unlimited supply of taxpayers funds to stay afloat, but only until December 2012, when the $200 billion cap goes back into place.

"We have plenty of room under the cap for the next few years," Fannie Mae CEO Michael Williams told Reuters.

Fannie has been hobbled by a four-year housing slump that sent home prices plummeting and led to record foreclosures. But as a result of the government's backing, both Fannie Mae and Freddie Mac have been able to continue channeling funds to the mortgage market.

The two are congressionally chartered companies whose primary mission is to buy mortgages from lenders to free up cash for banks to make more loans. The two firms repackage the loans for sale to investors as securities and charge fees to guarantee the debt.

Together, along with the Federal Housing Administration, they fund roughly 90 percent of all new U.S. mortgages.

Republicans are critical of the government's backing of Fannie and Freddie, and have pushed to restore a cap on the amount of taxpayer aid the two companies can receive.

The Obama administration shares the goal of diminishing government support for housing, and agrees a new model for U.S. housing finance is needed. Treasury Secretary Timothy Geithner told Congress last week that the was considering legislative ideas to address the future of two firms.

But policymakers are wary of moving too quickly to withdraw government support given the fragile state of the housing sector, and the Obama administration has made anti-foreclosure efforts its top near-term priority.

The Treasury has been pushing Fannie Mae and Freddie Mac's regulator, the Federal Housing Finance Agency, to allow the two firms to play a larger role in helping distressed borrowers who are current on their payments move into more affordable mortgages. The idea would be to bulk up a current government initiative, the Home Affordable Refinance Program.

Williams said Fannie Mae is eager to do what it can.

"This is an important program and we want to make sure we've done everything we can to make it as effective as possible," he said.

Williams said putting an end date on the life of the HARP program could spur greater participation from lenders who might otherwise worry government support could evaporate at any time.

"We should take one holistic view and define a timeline for the program so that investors can invest in a program that is going to be around for a while," Williams said.

Investors assume the government stands behind Fannie Mae and Freddie Mac and, as a result, they are happy to purchase the securities the two firms issue. If there was a timeframe placed on the program, it could help eliminate uncertainty.

(Reporting by Margaret Chadbourn; Editing by Diane Craft)

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