Fannie & Freddie: Mo’ Money

No surprise here:

As Home prices have fallen, more mortgages have defaulted. The increasing default levels are further pressuring the GSEs, sending them deeper in the hole. Hence, Fannie/Freddie will require significantly more cash to keep operating.

The two GSEs hold (or guarantee) about $5.2 trillion of the $12 trillion home-loan market. Freddie Mac has taken $13.8 billion in federal aid — and needs $35 billion more before March 1; Fannie Mae needs $16 billion. Note that F&F aren’t expected to take any immediate losses, but needs the cash flow to help them through the credit crisis.

Bloomberg has the details:

“Fannie Mae and Freddie Mac, the mortgage-finance companies seized by regulators, may need more than the $200 billion in funding pledged by the U.S. government if the housing market continues to deteriorate, Federal Housing Finance Agency Director James Lockhart said.

The companies’ needs will depend largely on the direction of home prices, Lockhart said in an interview in Las Vegas yesterday. His comments followed statements from Fannie Mae in November and Freddie Mac Chairman John Koskinen last week that the government’s funding commitment through 2009 may fall short of what the companies need to make good on their obligations.

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth, according to a Feb. 3 report from Following a record boom, home prices are down 25 percent on average since mid-2006 amid a tightening of lending standards and an economic recession, the S&P/Case-Shiller Composite 20-city price index shows.”

Bloomberg also quotes Freddie Mac Chairman John Koskinen, who manages to say the following absurd statement: “When we sized the amount in September, we obviously looked at stress tests and what was happening in the marketplace. There’s been some significant events since then that weren’t in our forecast.”

This is astonishing. Even as recently as Q3 2008, the major players still had no damned clue as to how bad things were.

When even at this late date, events continue to surprise you to the downside, its time to throw out all of your basic assumptions and models and start over.


Fannie, Freddie Funding Needs May Pass $200 Billion, FHFA Says
Dawn Kopecki
Bloomberg, Feb. 10 2009

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