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Sunday, February 28, 2010

Fannie Mae Loses $72 Billion in 2009

Tom Blumer at NewsBusters.org has an interesting article regarding the losses incurred by the Congressional puppet mortgage lender.

From the article:

"After the closing bell on Friday, just in time for everyone to stop paying close attention, mortgage behemoth and ward of the state Fannie Mae ('Fan') released its fourth-quarter and full-year financial results. Its press release (PDF) informs us that its $74.4 billion loss in 2009 (inclusive of dividends paid to the government) followed a $58.8 billion loss in 2008.

"For those keeping score at home, Fan's three-year losses of $137 billion, as reported by the Associated Press's Alan Zibel yesterday evening, plus the roughly $80 billion lost in the same period at kissing cousin Freddie Mac ('Fred'), is over three times the highest-end estimate of $66 billion in total losses at household word Enron, and over four times the roughly $50 billion investors lost to household name Bernie Madoff. Enron and Madoff are history; Fan and Fred are just warming up, and a large portion of the public has no idea who they are.

"Oh, by the way, Fan also told us yesterday that it will need another $15.3 billion in cash by the end of March. That would bring the total of Uncle Sam's combined Fan-Fred cash infusions to $126 billion."

So, losses of billions and still we continue to prop up these market distorting entities-- and we pay for it with a destabilized housing market and with continued de facto loan guarantees on high risk loans from Congress. Brilliant.

Blumer goes on to note this Wall Street Journal article by Peter J. Wallison from late December of 2009 that highlights the incredibly costly problems of Fannie Mae and Freddie Mac-- problems which, to this day, are routinely denied by the Left. The entire article is quite enlightening and well worth the time to read.

From Wallison:

"On Christmas Eve, when most Americans' minds were on other things, the Treasury Department announced that it was removing the $400 billion cap from what the administration believes will be necessary to keep Fannie Mae and Freddie Mac solvent. This action confirms that the decade-long congressional failure to more closely regulate these two government-sponsored enterprises (GSEs) will rank for U.S. taxpayers as one of the worst policy disasters in our history.

"Fannie and Freddie's congressional sponsors—some of whom are now leading the administration's effort to "reform" the financial system—have a lot to answer for. Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, sponsored legislation adopted in 2008 that established a new regulatory structure for the GSEs. But by then it was far too late. The GSEs had begun buying risky loans in 1993 to meet the 'affordable housing' requirements established under congressional direction by the Department of Housing and Urban Development (HUD).

"Most of the damage was done from 2005 through 2007, when Fannie and Freddie were binging on risky mortgages. Back then, Mr. Frank was the bartender, denying that there was any cause for concern, and claiming that he wanted to 'roll the dice' on subsidized housing support.

"In 2005, the Senate Banking Committee, then controlled by Republicans, adopted tough regulatory legislation that would have established more auditing and oversight of the two agencies. But it was passed out of committee on a partisan vote, and with no Democratic support it never came to a vote.

"By the end of 2008, Fannie and Freddie held or guaranteed approximately 10 million subprime and Alt-A mortgages and mortgage-backed securities (MBS)—risky loans with a total principal balance of $1.6 trillion. These are now defaulting at unprecedented rates, accounting for both their 2008 insolvency and their growing losses today. Since 2008, under government control, the two agencies have continued to buy dicey mortgages in order to stabilize housing prices.

"There is more to this ugly situation. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A.

"In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.

"An Alt-A mortgage is one in which the quality of the mortgage or the underwriting was deficient; it might lack adequate documentation, have a low or no down payment, or in some other way be more likely than a prime mortgage to default. Fannie and Freddie were also reporting these mortgages as prime, according to Mr. Pinto.

"It is easy to see how this misrepresentation was a principal cause of the financial crisis.
Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks.

"In addition, about 7.7 million subprime and Alt-A housing loans were in mortgage pools supporting MBS issued by Wall Street banks—which had long before been driven out of the prime market by Fannie and Freddie's government-backed, low-cost funding. The vast majority of these MBS were rated AAA, because the rating agencies' models assumed that the losses that are incurred by subprime and Alt-A loans would be within the historical range for the number of high-risk loans known to be outstanding.

"But because of Fannie and Freddie's mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience. When these rates began to show up early in 2007, it was apparent something was seriously wrong with assumptions on which AAA ratings had been based."

[...]

"Why Fannie and Freddie did this is still to be determined. But the leading candidate is certainly HUD's affordable housing regulations, which by 2007 required that 55% of all the loans the agencies acquired had to be made to borrowers at or below the median income, with almost half of these required to be low-income borrowers."

No. No. No. This was all caused by "greed" or something... I can't explain exactly how, but it was capitalist greed. Yep. No doubt.

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