Thread: Freddie Mac Chief Sees 'Large Wave of Foreclosures' Ahead

Freddie Mac Chief Sees 'Large Wave of Foreclosures' Ahead

Wednesday, 24 Feb 2010 02:20 PM

Freddie Mac lost almost $26 billion last year, ominous news for taxpayers who are footing the bill to rescue the mortgage finance company and its sibling Fannie Mae.

Freddie Mac, which has lost a total of almost $80 billion since the housing crisis started in 2007, is bracing for more pain. The McLean, Va.-based company said a record 4 percent of its borrowers are at least three months behind on their payments and facing foreclosure.

Its chief executive, Charles Haldeman, warned Wednesday of a "potential large wave of foreclosures" still to come.

This is a major problem for the federal government, which seized control of Freddie and Fannie in September 2008. The two companies have already siphoned $111 billion from the government to stay afloat. That number is expected to hit $188 billion by fall 2011.

And while Freddie Mac didn't ask for any more bailout money last quarter, the company said it will likely need more financial aid and might never repay it.

"We now have unlimited taxpayer exposure to the bailout of Fannie and Freddie, a bailout nation where the big get bigger, the small get smaller and the taxpayer gets poorer," Rep. Jeb Hensarling, R-Texas, said at a House hearing Wednesday.

Fannie and Freddie dominate the mortgage market, backing about 70 percent of the loans made last year.

The two companies purchase mortgages from lenders and package them into securities. Investors are willing to buy the securities because they are effectively guaranteed by the U.S. government. That puts American taxpayers at risk.

But the fragile housing sector is so dependent on the government that officials say they won't have a detailed exit strategy until next year.

Underscoring the market's weakness, the Commerce Department said Wednesday that sales of new homes unexpectedly plunged 11 percent from December to January to the lowest level on record.

Treasury Secretary Timothy Geithner told lawmakers Wednesday that the Obama administration will "make sure we bring about fundamental change in the housing market and get ourselves in a position where the government is playing a less risky, but more constructive role in supporting housing markets in the future."

Separately, Freddie Mac warned there is "significant uncertainty as to whether or when we will emerge" from government control.

For taxpayers, stabilizing Freddie and Fannie Mae has been one of the costliest consequences of the financial meltdown. Freddie Mac has received about $51 billion from Treasury to date, and the Obama administration has pledged to cover unlimited losses through 2012.

Freddie Mac said Wednesday it lost $25.7 billion, or $7.89 a share, for all of 2009. Of those losses, $4.1 billion went to dividends paid to the Treasury Department, which holds a nearly 80 percent stake in the company.

In the final three months of last year, Freddie Mac posted a loss of $7.8 billion, or $2.39 a share. The results, however, were a marked improvement over the fourth quarter 2008 when Freddie lost $23.9 billion, or $7.37 a share.

During the most recent quarter, Freddie suffered $7.1 billion in credit losses and a $3.4 billion write-down in low income tax credit investments. Also Wednesday Fannie Mae said in a regulatory filing that it plans to take a $5 billion charge when it reports its fourth quarter results later this week.

http://moneynews.com/Headline/US-Earns- ... /id/350813

Geithner: No Change to Fannie, Freddie Until 2011

Wednesday, 24 Feb 2010 03:39 PM

The Obama administration will wait until 2011 to propose an overhaul of mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Timothy Geithner said Wednesday, arguing that he wanted to put some distance between a new system and what he called "the worst housing crisis in generations."

Geithner also told lawmakers the administration had no intention of including the two entities in the federal budget, even though they were taken over by the government in 2008 as they faced mounting losses from mortgage defaults.

"That's going to be a difficult set of reforms, but we do not believe it's necessary to consolidate the full obligations of those entities onto the balance sheet of the federal government at this stage," Geithner told the House Budget Committee.

Fannie Mae and Freddie Mac are vital players in the mortgage industry, purchasing home loans from lenders and selling them to investors. They own or guarantee about half of all residential mortgages. Had they gone broke in 2008, millions of people would have been unable to get mortgages.

The administration's Republican critics have argued that President Barack Obama should have proposed sweeping changes to Fannie Mae and Freddie Mac last year, when he demanded an overhaul of financial regulations. The administration had been expected to announce its plans this month when it submitted its 2011 budget request.

"We want to make sure that we are proposing these changes at a time when we have a little bit more distance from the worst housing crisis in generations," Geithner said.

That argument is exactly the opposite of the case Geithner is making for new financial regulations. Geithner is pressing Congress to move swiftly on new Wall Street rules, saying action must occur before memories of the financial crisis recede.

"We can't do everything right away," he said.

But Congress may move faster on the future of the mortgage giants. House Financial Services Chairman Barney Frank has scheduled a hearing for March 2 on their future. And Federal Reserve Chairman Ben Bernanke, testifying before that committee on Wednesday, urged a swift response.

"The sooner you get some clarity about where the ultimate objective is, the better," he said.

Geithner called for measures that make sure "the government is playing a less risky, but more constructive role in supporting housing markets in the future."

Republican lawmakers have also called for the administration to begin including Fannie and Freddie in the federal budget, saying that would give a more accurate picture of the government's fiscal condition. Last month, the Congressional Budget Office estimated the operation of Fannie and Freddie would add $99 billion to the federal deficit projected for the 10-year period ending in 2019.

Geithner also sought to assure lawmakers that stimulus spending to spur the economy now isn't in conflict with a need for longer-term austerity. Before the federal government can begin attacking soaring deficits and a massive national debt, it needs to increase jobs and ensure economic growth, he said.

"If you care about future deficits — and you have to care about these future deficits — you need to care about economic growth today," the secretary said. He offered a forceful endorsement of administration policies, ranging from expanded health care to tougher banking regulations.

Geithner's testimony came as Obama faces growing pressure to both address stubbornly high unemployment and to confront a rising pool of red ink. But even under Obama's ambitious budget blueprint, unemployment would still be pushing double digits at 9.8 percent, and this year's deficit would increase to $1.56 trillion under the administration's accounting. The Senate voted 70-28 Wednesday in favor of legislation to address chronic joblessness by providing tax breaks to businesses that expand their payrolls.

http://moneynews.com/Headline/US-Geithn ... /id/350831