Fannie, Freddie Post New Losses; Bailout Tops $150 Billion
Last week, Fannie Mae announced it lost $1.2 billion in the second quarter and asked the Treasury Department for an additional $1.5 billion to see it through. In the first quarter, it lost $11.5 billion.
It noted: “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.”
Today, its twin, Freddie Mac, announced that it lost $4.71 billion in the second quarter, and it asked Treasury for $1.8 billion to remain solvent. It too said it does not foresee any return to profitability.
So how did Freddie Mac end up losing so much more than Fannie Mae? The two have the same mission, but keep separate books. This quarter, Freddie lost $3.8 billion on derivatives, where it had made $2.4 billion on derivatives the same quarter a year ago. It also made $5 billion in credit losses. Still, the organization performed better in the second quarter than the first, where it lost $6.7 billion.
The total bailout for the two will now top $150 billion. Fannie Mae and Freddie Mac, which stabilize and provide liquidity to the housing market by buying up mortgages from lending banks, have a blank check from the government.
Last week, rumors abounded that the Obama administration, realizing Congress will likely enact no more stimulus, might force Fannie and Freddie to write down the value of mortgages — essentially bailing out underwater homeowners. Since, the Treasury Department has quashed the rumor.