| Fannie Asks for Billions... Again! |
| Written by Adam Silverman |
| Sunday, 08 May 2011 00:00 |
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Last week, Fannie asked the government for $8.5 billion to cover losses incurred during the first three months of 2011. So far, the company has requested almost $100 billion from the federal government, which is putting it in AIG bailout territory. The government has estimated that it will cost $259 billion in total to cover all of the losses that Fannie Mae will incur. The losses result from several factors. One is falling home prices. When the price of a home falls, the mortgage may actually be more than the value of the house. If the owner cannot afford the payments and wants to sell the home, he or she won't be able to pay off the loan! Or, the homeowner who can afford the payments may choose to default, which means that he or she simply decides to not make the monthly payments. A year or more later, when the wheels of justice finish turning, the homeowner will be kicked out of the home. Another reason for losses is that the homeowner has lost his or her job, making it impossible to continue to make the monthly payments. Because Fannie Mae backs up the homeowner, if this happens (50% of the nation's mortgages are currently backed by Fannie and 90% of all new mortgages are backed by Fannie, Freddie or another goverment agency), it must pay the resulting losses. Multiply this situation by millions of Americans in some stage of default and the losses are huge, in this case $8.7 billion over a 3-month period.
Unfortunately, the CEO of Fannie Mae, Michael Williams, states, "We expect our credit-related losses to remain elevated in 2011 as we continue to be negatively impacted by the prolonged decline in home prices". As long as home prices keep falling, homeowners will keep defaulting, and Fannie will have to pay the resulting losses. Remember, when a homeowner defaults, the taxpayers are the ones paying for the losses, since the taxpayers give the money to the government, which gives it to Fannie so it can reimburse whoever owns the loan and is suffered the loss. Because of the amount of losses that the taxpayers are paying for, Congress is going to attempt o reform Fannie and Freddie in order to ensure that they won't be on the hook for loans made now and in the future. Republicans and Democrats are arguing over how to restructure Fannie and Freddie right now. Who knows when we'll see a specific piece of legislation on the matter.
For more info on the losses, click Fannie Mae seeks $8.5 billion more in federal aid. Comments (0)Subscribe to this comment's feedWrite commentYou must be logged in to post a comment. Please register if you do not have an account yet.
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