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SEEKS FINANCIAL OVERHAUL AMENDMENT GOP Senator Richard Shelby says Fannie Mae and Freddie Mac have gone "unscathed" despite their big losses. |
Fannie, Freddie rescue tab climbs to $145b
WASHINGTON — Fannie Mae has again asked taxpayers for more money — this time $8.4 billion — after reporting another steep loss for the first quarter. The taxpayer bill for rescuing Fannie and its sibling Freddie Mac has grown to $145 billion — and the final tally could be much higher.
The rescue of Fannie and Freddie is turning out to be one of the most expensive aftereffects of the financial meltdown, and Fannie Mae’s first-quarter financial report yesterday made it clear there is no end in sight.
“The losses are not going to stop soon,’’ said Anthony Sanders, a finance professor at George Mason University, who warns the housing market is likely to drop sharply again this year.
Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Fannie and Freddie, lifting an earlier cap of $400 billion. And with the housing market still on shaky ground, Obama administration officials say it is still too early to draft any proposals to reform the two companies or the broader housing finance system.
Republicans, on the other hand, argue that the sweeping financial overhaul before Congress is incomplete without a plan for Fannie and Freddie. They propose amending the legislation to transform Fannie and Freddie into private companies with no government subsidies or shut them down completely.
The legislation “touches nearly every corner of the economy,’’ Alabama Senator Richard Shelby said in the GOP weekly radio and Internet address over the weekend. “But these major contributors to the crisis are left unscathed,’’ he said, singling out Fannie Mae and Freddie Mac.
Democrats call such arguments a diversion. They say Congress already gave the government far more power over Fannie and Freddie nearly two years ago when lawmakers passed a bill that set the stage for a government takeover over of the companies in September 2008.
Fannie and Freddie operate “in a manner entirely different than they had been during the crisis period, precisely because Democrats acted — in collaboration with the Bush administration,’’ Representative Barney Frank, Democrat from Newton, Mass., wrote last week in a memo to White House chief of staff Rahm Emanuel. Their losses “occurred before we took the first step towards reforming them . . . nothing we could do today will diminish those losses.’’
Created by Congress, Fannie and Freddie buy mortgages from lenders and package them into bonds resold to global investors. Together, the pair own or guarantee almost 31 million home loans worth about $5.5 trillion — about half of all mortgages.
The two companies, however, loosened their lending standards for borrowers during the real estate boom and are reeling from the consequences. As the housing bubble burst, they were unable to raise enough money to stay afloat, and the government effectively nationalized them.
Since then, Uncle Sam’s share of the mortgage business has kept getting bigger. Government institutions — mainly Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Veterans Administration — backed nearly 97 percent of home loans in the first quarter of 2010, according to trade publication Inside Mortgage Finance.
But because the number of bad loans made during the boom continues to rise, Fannie Mae lost $13.1 billion, or $2.29 per share, in the January-March period. Last week, Freddie Mac said it lost $8 billion or $2.45 a share, in the same period.
© Copyright 2010 Globe Newspaper Company.
