Wednesday, February 24, 2010

New Home Sales Unexpectedly Plunge to Record Low; Fannie Mae, Freddie Mac Post Losses

Before we get to new home sales, let's take a look at how the GSEs are doing. Please consider Fannie, Freddie Post Losses on Tax Credit Writedowns. http://www.bloomberg.com/apps/news?pid= ... jk.I&pos=6

Freddie Mac posted a $6.5 billion net loss as it marked down $3.4 billion in low-income housing tax credits that the U.S. Treasury Department barred the McLean, Virginia-based company from selling, according to a filing today. Fannie Mae, which plans to report official results this week, said it’s taking a $5 billion charge for the same reason.

Freddie Mac, which buys mortgages and guarantees home-loan securities, has tapped $50.7 billion in Treasury preferred stock investment since November 2008 to remain solvent. While Freddie Mac avoided having to take more federal aid for a third straight quarter, the company said new accounting rules that took affect Jan. 1 will reduce its net worth by about $11.7 billion in the first quarter and require going back to for more aid.

The Treasury found that an agreement Fannie Mae had to sell about half of its credits would have cost taxpayers more than the company would gain from the deal, according to a November letter to that company. The credits can be applied to profits to lower the amount of taxes owed. Because Fannie Mae hasn’t been profitable in almost three years, the company had sought to sell the credits to a business that could take advantage of the tax benefits.

Freddie Mac and Fannie Mae, now own or guarantee more than $5 trillion in U.S. residential debt, and were responsible for as much as 75 percent of the new mortgages made last year.

Losses at Freddie Mac are likely to grow with rising unemployment and costs to implement President Barack Obama’s housing plans, the company said.

Fannie Mae and Freddie Mac survived last year on $200 billion each in emergency financing pledged by the Treasury after regulators put the two in conservatorship in September 2008. The Treasury on Christmas Eve raised that lifeline to an unlimited amount through 2012. The U.S. government makes the payments through preferred stock purchases when the value of the companies’ assets drop below the amount owed on their obligations.

“We start 2010 with some early signs of stabilization in the housing market, with house prices and home sales likely nearing the bottom sometime in 2010,â€