Even the word “bailout” is on some insiders’ lips.
The two quasi-federal mortgage agencies lost more than $9 bil last year, and some analysts think things could get worse.
Some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion — the capital that their regulator requires them to hold — underpins a colossal $5 trillion in debt and other financial commitments.
On Tuesday, Fannie Mae reported a loss of $2.2 billion or $2.57 a share in the first quarter compared with a profit of $961 million, or 85 cents a share, in period a year ago. Analyst surveyed by Thomson Financial exepected a loss of 81 cents a share in the latest period.
In other words, Fannie Mae could lose $9 billion by itself this year.
Meanwhile, both Fannie and Freddie are pushing back against any possible new regulation to require a higher reserve percentage backing their mortgages. And their regulator, the Office of Federal Housing Enterprise Oversight, has promised to reduce that reserve backing requirement to 15 percent from 20 percent.
Its director, James B. Lockhart, is bullish, but an anonymous staffer says, “It’s not irrational to be thinking about a bailout.”
Wundebar.
Frankly, I think we should abolish both agencies as a freebie subsidy to the home-building and mortgage-lending industries.
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