Colin Barr

Following the money in banking, economics, and Washington

Fannie-Freddie tab hits $153 billion

November 5, 2010: 5:28 PM ET

Fannie Mae posted a $1.3 billion third-quarter loss, blaming high unemployment and falling house prices for the latest rise in loan defaults.

The Washington-based mortgage company, which has been run by the government since the feds took over Fannie (FNMA) and its younger brother Freddie Mac (FMCC) two years ago, asked for $2.5 billion in new taxpayer funds to fill the net worth hole left by the latest-quarter loss and the dividends the company pays Treasury.

This is no longer a problem, apparently

Once Fannie gets those funds later this year, it and Freddie together will have taken down $153 billion in taxpayer funds since their federal takeover in September 2008, with more surely to come. But the companies say their health is improving, damning with faint praise though that may be.

"Our operating results reflect our ongoing efforts to manage the credit-related expenses in our legacy business and build a new, profitable book of business," said CEO Michael Williams.

Fannie said credit losses, reflecting loans written off as uncollectible plus costs tied to foreclosed properties, rose to $8.2 billion in the latest quarter from $7 billion in the second quarter ended June 30.

"The increase was attributable to an increase in defaults, particularly those due to the prolonged period of high unemployment and the decline in home prices," Fannie said.

Fannie said it acquired 85,349 single-family properties through foreclosure in the latest quarter, bringing its inventory of real estate owned to 166,787 units. The company said it has seen an increase in the proportion of properties that it is unable to market for sale this year compared to last. Its foreclosure rate rose to 1.91% from 1.52% in the second quarter.

Fannie joined the club that isn't able to determine how much its costs will be hit by the foreclosure problems being exposed at the biggest banks that service mortgages.

"Although the company expects the foreclosure pause will likely negatively affect its serious delinquency rates, credit-related expenses, credit losses, and foreclosure timelines, it cannot yet predict the extent of the impact," Fannie said.

As Freddie did earlier this week, Fannie also made note of the increasing sums it is devoting to paying a dividend to Treasury.

The firm paid out $2.1 billion to taxpayers this quarter and warned in its earnings release that it expects, as its bubble-era bad loans run off and are replaced by good loans to solvent buyers, to find itself dedicating an increasing amount of resources to keeping its bailout masters sort of happy.

The firms pay Treasury a 10% dividend on the preferred shares they issue when the government gives them more money, and they have made clear they aren't crazy about the arrangement -- though the rising taxpayer tab means there is virtually no chance the government will give them what they clearly feel would be a well deserved break.

"Although Treasury's funds under the senior preferred stock purchase agreement permit the company to remain solvent and avoid receivership, the resulting dividend payments are substantial and the company does not expect to earn profits in excess of its annual dividend obligation to Treasury for the indefinite future," Fannie said, to a background accompaniment of mournful string instruments. "As draws from Treasury for credit losses abate, the company expects its draws to be driven increasingly by dividend payments to Treasury."

But when you're taking the government's nickel, that is the luck of the draw.

Posted in: , , ,
Join the Conversation
About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

Email Colin
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.