NEW YORK Fannie Mae, the largest U.S. provider of financing for residential mortgages, on Friday said it needed an extra $2.5 billion from the U.S. Treasury after a third quarter loss on foreclosure and other credit expenses.
While the $3.5 billion loss narrowed from $19.8 billion a year earlier, the government-sponsored company said it needed more government funds to plug a net worth deficit, most of which was due to dividend payments back to Treasury.
Fannie Mae FNMA.OB and rival Freddie Mac FMCC.OB are at a crossroads where Congress is debating changes to their businesses -- or their very existence -- after decades of providing the lion's share of U.S. home loan funding. Both political parties say their current models are costing taxpayers billions of dollars and must be abolished. The parties are split on the level of future government support.
Including the requested capital for the past quarter, Fannie Mae will have drawn $88.6 billion from Treasury. It has paid $8.1 billion in dividends as of September 30.
The Obama administration has signaled backing some form of ongoing government support. Republican Spencer Bachus, a frontrunner to chair the House Financial Services Committee, this week asserted the companies should be in liquidation.
Fannie Mae said credit-related expenses, which include provisions for losses and foreclosed property expense, rose to $5.6 billion in the quarter from $4.9 billion in the previous period. Among factors, it lowered the value of repossessed homes it owns, it said.
The company also said it expected credit losses would rise due to the pause in foreclosures after some loan servicers found "deficiencies" as they processed delinquent borrowers.
Errors -- including alleged faulty affidavits -- at mortgage companies including GMAC Mortgage and Bank of America Corp (BAC.N) have drawn sharp criticism from lawmakers and states' attorneys general, who have opened an industry probe. Fannie Mae reminded its servicers it may seek damages where their failures have increased its credit losses, it said in a Securities and Exchange Commission filing.
Fannie Mae is also pressuring lenders to buy back loans that failed to meet its standards, yet were packaged into bonds with its guarantee. The so-called "repurchases" are creating friction with banks that are disputing many and responding with more stringent verifications on loan applications.
Fannie Mae recorded $1.6 billion in repurchases last quarter, and had $7.7 billion in requests outstanding.
Like Freddie Mac, Fannie Mae saw a surge in its inventory of foreclosed homes last quarter, partly as servicers have exhausted reviews of troubled borrowers for loan modifications, and moved ahead on foreclosures, Thomas Lawler, founder of Lawler Economic & Housing Consulting, said in a research note.
Fannie Mae said it held 166,787 properties as of September 30, up from 129,310 in the second quarter. The company is having trouble selling the homes, many of which are in redemption periods, still occupied or being repaired, it said.
Offsetting credit expenses was a 13 percent rise in revenue to $5.1 billion, it said. Its new business acquired since the beginning of 2009 is strong in credit, it said.