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17 May, 2011

Fannie Mae is back in the loss column and need your money

Fannie Mae reported a net loss of $6.5 billion for the first quarter as a weakening housing market dashed hopes that the company had stabilized.

Fannie said Friday it would ask the government for a fresh taxpayer infusion of $6.2 billion after paying dividends to the Treasury. The loss follows net income of $73 million during the previous quarter.

Fannie's loss came as it increased its loan-loss reserves after it revised down its home-price forecast for 2011, and took bigger-than-expected losses on the sale of foreclosed properties. The mortgage-finance giant booked $11 billion in credit-related expenses, up from $4.3 billion last quarter.

"Right now, we're not seeing a lot of good things in the residential real-estate markets," said David Hisey, acting chief financial officer for Fannie Mae.

Home-price declines pose a big risk to Fannie and its smaller sibling Freddie Mac because the firms could take steeper losses on a rising number of foreclosed homes that must be resold. Fannie and Freddie owned 218,000 homes at the end of March, a 33% increase from a year ago.

The rising losses came despite a decline in the share of single-family loans that were 90 days or more delinquent. Those fell to 4.27% at the end of March, down from 4.48% at the end of last year. Fannie has around $206 billion in delinquent loans on its books, "so with that much exposure, if you just have a little bit of negative things happening, it can have a big impact," said Mr. Hisey.

Fannie's report comes days after Freddie Mac reported net income of $676 million for the first quarter.

"It is clearly too soon to say that they've turned a corner," said Jim Vogel, an analyst at FTN Financial.

The federal government has committed unlimited sums to prop the companies up and keep mortgage markets from collapsing. So far, taxpayers are on the hook for around $138 billion, with $86 billion for Fannie and $52 billion for Freddie.

The government receives preferred shares that pay a 10% dividend in exchange. At the current rate, Fannie must pay the government $2.3 billion each quarter. Fannie has posted losses for 14 of the past 15 quarters.

01 May, 2011

Real Estate prices continue to decrease

The downward spiral of housing prices continued in February, according to the closely watched S&P/Case-Shiller home-price indexes released Tuesday. The battered market, which has already seen prices fall by more 30% nationwide, is in double-dip danger and there’s more pain to come.

“There is very little, if any, good news about housing,” says David M. Blitzer, chairman of S&P’s index committee. As we report, the Case-Shiller index of 10 major metropolitan areas slipped 1.1% compared with January, and the 20-city index also fell 1.1%. Adjusted for seasonal factors, both the 10-area and 20-area indexes declined 0.2%. Compared with a year earlier, unadjusted February prices declined 2.6% for the index of 10 metro areas, while the 20-city index was shaved by 3.3%.

Here’s what economists have to say:

    Patrick Newport, IHS Global Insight: “Are we nearing the end of falling house prices? Probably not. …The vicious cycle in which falling prices lead to more foreclosures which lead to even lower housing prices, continues to play a role in keeping housing on the mat.”
    Paul Dales, Capital Economics: “House prices have started to drop at a faster pace and on some indices are now falling at rates not seen since the financial crisis. …With the foreclosure pipeline still full to bursting, there is risk that a vicious circle of rising foreclosure sales and falling prices develops. If so, there is a real risk that prices could slide by more than our current 5% forecast.”
    Aichi Amemiya, Nomura Global Economics: “Depressed levels of home sales and massive foreclosure inventories will keep the price index weak over the next few months. That being said, the combination of imperfect seasonal adjustment and a surge in home sales in the spring time may alleviate the downward pressures on the index to some extent.”


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