Fannie And Freddie Floundering
And, shocking, hitting Uncle Sammie up for a few more billion dollars, on top of the billions that have already been gobbled up with little chance of ever being repaid – a total approaching $148 billion.
Continuing the grim news of the Obama Administration’s self-proclaimed Summer of Recovery, mortgage-finance mutant Freddie Mac is reporting a staggering second-quarter net loss of $6 billion, and getting ready to hit up the Treasury Department for an additional $1.8-billion bailout to keep afloat.
The news comes on the heels of Fannie Mae last week reporting a net loss of $3.1 billion and reports that it, too, will be seeking additional bailout cash – to the tune of about $1.5 billion.
From TheStreet:
The Fannie-Freddie bailout is soon to top $148 billion and, unlike American International Group’s, it stands little chance of being repaid. While AIG topped the bailout list with a one-time height of $182 billion the firm has shaved the total down to under $70 billion, with a big chunk set to be repaid by year-end.
Looking at the delinquency trends of Fannie and Freddie’s loan books, it’s clear the mortgage-finance giants aren’t near the end of the loan-loss tunnel. That’s especially true if the economy – and housing market – remain on shaky ground.
The default rate on loans originated in 2006 is nearing 5% for Fannie Mae, while the portion of Freddie Mac’s 2006 loans that succumbed to foreclosure or short-sale is approaching 4%. That might sound meager, except when considering that the same statistics for pre-2005 vintage loans range from 0.5% to just above 1%.
Recall that the whole Freddie and Fannie mess is rooted in the so-called Community Reinvestment Act of the late ‘90s, championed by the Clinton Administration and Congress, which strong-armed lenders into making risky home loans to folks who couldn’t afford them and bundling mortgage-backed securities to hedge bets on the subprime loans. The bonds and loans collapsed, helping to trigger an overall financial implosion and sending Freddie and Fannie running for bailouts.
We all see how wonderful that’s worked. So naturally, let’s continue more of the same: another few billion dollars in bailout and logic be damned.
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