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November 7, 2009

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Fannie Mae asks for extra US$15b aid

FANNIE Mae is asking for an additional US$15 billion in government aid after posting another big loss in the third quarter as the taxpayer bill from the housing market bust keeps rising.

The government-controlled company continued to see a dramatic surge of borrowers fall behind as the unemployment rate climbs. At the end of last month, about 4.7 percent of Fannie Mae's borrowers had missed at least three payments. That's nearly triple last year's level.

Seized by federal regulators 14 months ago, the problems at Fannie Mae and sibling company Freddie Mac have proven far worse than most experts had foreseen. Fannie Mae's request on Thursday will bring the tab for rescuing both companies to about US$111 billion. The government has promised up to US$400 billion in assistance.

And Fannie Mae cautioned: "We do not expect to operate profitably in the foreseeable future."

Fannie Mae and Freddie Mac play a vital role in the mortgage market by purchasing loans from banks and selling them to investors. Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about US$5.5 trillion. That's about half of all mortgages.

The two companies lowered their standards for borrowers during the real estate boom and are reeling from the consequences. High-risk loans, now defaulting at a record pace, have come back to haunt the companies. Worse still, the recession is causing formerly reliable homeowners with good credit to default.

Fannie Mae posted a quarterly loss of US$19.76 billion, or US$3.47 per share. The loss includes US$883 million in dividends paid to the Treasury Department and compares with a loss of US$29.41 billion, or US$13 per share, in the year-ago period.

The results were driven by US$22 billion in credit losses as the firm builds its reserves for sour mortgages.


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