Major losses = more credit?
Despite a first quarter loss of $13.1 billion, Fannie Mae requested an additional $8.4 billion, on the heels of Freddie Mac’s announcement of losing $8 billion and requesting an additional $10.6 billion in federal assistance. Fannie’s losses are $3.5 billion lower than their 2009 fourth quarter losses.
The U.S. Treasury Department took control of Fannie Mae and Freddie Mac in 2008 as conservators “temporarily” but have yet to hint at any plan for a solution. Fannie and Freddie have already been issued over $145 billion in assistance.
Typically, when someone is in debt and continues to lose money, lenders don’t answer by offering more credit, but on Christmas Eve, the Obama administration pledged to backstop all losses for Fannie mae and Freddie Mac through 2012 indicating the never ending line of credit from Uncle Sam.
Will the losses stop soon?
“Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future,” Fannie Mae said to Reuters.
Fannie Mae warned of “significant uncertainty as to our long-term financial sustainability” as it expects the continued weak housing market to keep default rates and credit-related costs high.
Housing analyst Rajiv Setia of Barclays Capital said Fannie Mae is likely to draw another $40 billion to $50 billion from the U.S. government, bringing the total assistance to Fannie and Freddie to over $200 billion.
Senior senators Richard Shelby of Alabama, Judd Gregg of New Hampshire and John McCain of Arizona want to require the government to end its conservatorship and control over Fannie and Freddie within 24 months. Their amendment will go under consideration tomorrow although it is not expected to win enough votes to pass.
The Senate can’t agree, Geithner doesn’t have a plan, and ideas that no one can agree on (like total abolishment of Fannie and Freddie) are all we’re hearing. So, we ask what you think the answer is? With Fannie and Freddie hemmorhaging money and no end to Uncle Sam’s line of credit in sight, what is the answer?