Not Good: Fannie Mae Loses $2.3 Billion

Fannie Mae is the nation’s largest mortgage finance company and it’s just not doing too well, says the AP. Increasing losses from foreclosures are wiping out Fannie’s revenue.

…expenses related to foreclosures and other credit losses increased to $5.3 billion from $3.2 billion in the previous quarter. And the company signaled that those losses would probably accelerate.

The loss “is a reflection of the extraordinary pressures at work in the housing and mortgage markets,” Fannie Mae’s chief financial officer, Stephen M. Swad, said in a statement. “The credit picture remains very difficult.”

“We estimate that average home prices declined by 6 percent on a national basis during the second quarter of 2008, which translates to an 8 percent total national decline since the beginning of the downturn in the second quarter of 2006.”

Two days ago Freddie Mac, the second largest lender, told investors that it had experienced a loss that was 3 times what they were expecting.

Fannie Mae says they will stop offering Alt-A mortgages and cut operating costs by 10%.

A $2.3 Billion Loss for Fannie Mae [NYT]


Edit Your Comment

  1. samurailynn says:

    Does this mean anything for people who already have loans from Freddie or Fannie?

  2. orielbean says:

    They trimmed their dividend to shareholders as well.

  3. shadax says:

    This is going to get ugly. A great deal of corporations and households are going to be in trouble. And I’m loving every minute of it. Sorry, the Kool-Aid ran out. Now when I hear the phrase “priced out of the market”, instead of cringing, I can just laugh at the idiots.

  4. laserjobs says:

    @samurailynn: Yeah, that taxpayers are subsidising your mortgage. So we all own a little piece of your house.

  5. Angryrider says:

    What? The bailout didn’t help? How will government help those poor shareholders?

  6. samurailynn says:

    @laserjobs: My question is more along the lines of ‘Since every payment has been on time, and I’m paying more on my principal every month than is required, do I have anything to worry about if these lenders are doing poorly?’

  7. mackjaz says:

    @samurailynn: I have often wondered about this as well. Does paying ahead accomplish anything if the value of my home goes down? Does anybody know? And I know this is probably a stupid question, but if my lender goes down, I will have to continue making mortgage payments, yes?

    I just hate the fact that irresponsible people (I know some were victims, etc.) are getting a bailout, while I have carefully budgeted my money and bought a house I knew I could afford, and I get NOTHING from this stupid government. How about another imaginary $1800 tax stimulus check cashed on the future debt of my great-grand children? I cannot imagine more egregious mismanagement by an administration than this.

  8. mike says:

    That’s okay! The government will help them out! Why, that’s what big daddy is for! If you do something wrong and lose a lot a money, never fret! Just jump on daddy’s lap and cry and he’ll give you more money to piss away.

  9. samurailynn says:

    @mackjaz: Well, no matter what the actual value of my home does, I still own a specified amount on my loan. Having a fixed rate loan with no pre-payment penalties, the amount of interest that I am charged does decrease every time I make an extra payment toward my principal balance. I’m tracking it with a spreadsheet, and I can see that doing this will be taking years off the length of my loan. So, it is definitely worth it in the sense that I will have my debt paid off earlier, and with less interest paid.

    I also did talk to the bank that I got the loan through about what would happen if they went under while I still had a loan through them. According to them, when that happens, loans are purchased by another lender. So, the entity that I make my payments to would change, but the terms of my loan would not.

    The thing is, I never even thought to ask what would happen if the FHLMC (Freddie Mac) went under. I don’t know exactly how the FHLMC ties in with the banks that loans are made through. I can’t even imagine the further complications if I had gone to a private mortgage broker, who would have gotten me a loan through a bank, who would have gotten the loan through the FHLMC. As far as I can tell, I should be fine if I keep making my payments, but it would be nice to know how these things all work.

  10. samurailynn says:

    @samurailynn: ugh… I “owe a specified amount” not own.

  11. FrugalFreak says:

    You people act like it is a crime because joe blow wanted to provide his family a house. You can’t act all superior because your crisis is just around the corner. You are a slave to the system just like lower income joe. may your stocks go lower and you taste the dirt and get a speck of compassion. I hate Elite acting Snobs!

  12. @FrugalFreak: Psh… you don’t have to buy a house you can’t afford to provide for your family. How about getting an apartment in those cases? How about getting a home which is somewhat more humble than the one you can’t afford? You knew the numbers when you signed up. You know the rate could change when you signed up. Either that, or you chose not to know.

    People made a choice and now they have to deal with it.

    It sucks to a degree because a lot of people are having to face tighter expenses now that everything is on a slight downturn, but people shouldn’t be living so close to their means anyhow. I guess it just isn’t the American way.

    (I do, however, acknowledge many people who are going through the hardest points in their lives right now thanks to loss of employment in waning industries. Good luck!)

  13. I thought Fannie Mae and Freddie Mac where geared towards first time home buyers… or people whose credit was not great and needed help not to be screwed by high rates. I don’t think I’m understanding what purpose they served that was any different from a regular bank.

  14. MrSpaz says:

    Fannie and Freddie are big players in the “secondary” mortgage market.

    A typical mortgage generally plays out like this: You approach your bank for a home loan; they generate the documentation, set the terms, etc. and then initially fund the loan. This is the “primary” mortgage market; lenders making loans to borrowers.

    There are some key points to note here. First, if banks made loans against their deposits only, they’d soon run out of money to lend and would have to stop making loans until deposits increased or some loans were paid off (yes, this is a simplified description of things, but is true in essence). Second, it’s important to remember something key about bankers: If there’s anything they love more than money, it’s money *right now.*

    So what your bank does is takes loans it holds and “resells” them to parties willing and/or able to hold the loan for the long term, generally for some amount less than the total value of the loan. This is the “secondary” mortgage market; lenders selling outstanding loans to other lenders.

    Here’s where FNMA and FRMC come into the picture. They purchase the majority of the loans placed on the secondary market and hold them for the long term, making money on the difference between the lesser amount paid to the bank to acquire the loan and the total, paid-off value of the loan in question. Both FNMA and FRMC are or were quasi-governmental institutions; a class of business granted special powers and privilege by the US government to undertake some task considered beneficial to the population. In this case, buying home mortgages from banks to keep the lending market relatively open and available to more home buyers.

    That’s the gist of it anyways. There are other participants in both the primary and secondary markets, of course, but that’s for another discussion. :)

    If the financial institution holding the note on your loan goes under, then your loan will be resold to another lender as an asset in the liquidation of the first (failed) institution. Someone, somewhere, will almost always be willing to buy that loan and collect the interest you’re paying.

    As for “paying ahead” on your loan and the effect if your home’s value declines: Your loan value, of course, does not change when the value of the home increases or decreases. What does change is the equity value of the home; the difference between the liability (your mortgage) and market value of the property. IF you plan on staying in the home for the long haul, then by all means pay down the mortgage at an increased rate. As another poster mentioned, you can shave years off of your loan term (and save a good amount of money in interest payments) by accelerating your payment schedule.

    On the other hand, if you plan to occupy the property in the short term and you are located in a market area of declining values, then paying ahead on your mortgage is only doing the bank a favor. Consider that any decline in property values reduces your equity share if the property is sold. By paying ahead on the mortgage, you are essentially paying in to an investment that is losing money. You would be better served making the normal mortgage payment and placing any additional funds into some investment with any kind of positive return.

  15. MrSpaz says:

    Apologies for the rather massive post there. I tend to get wordy. :/

  16. pinkbunnyslippers says:

    Cut operating costs by 10% = layoffs

    And you know those layoffs aren’t going to be from the number of duplicative senior executives that company’s got – it’ll be all the hard working folks in the middle.

    Really sad.

  17. Invective says:

    The truth is that nobody knows how bad – bad will be. If you picture your local bookie laying off bets without keeping records. Banks wanted a way to make more money with home loans. In the past banks would typically finance home mortgages in the traditional way with buyers that had great credit and all that. This was a load of upfront money, so why not make these loans to more risky borrowers and then dump them. In that case it didn’t really didn’t matter what a borrower’s financial condition was, only that the deal closed with the necessary down, fees, penalty fees and points intact. Banks began betting on these new loans. To dump them, these home loans were bundled up and traded like commodities, but without any regulation. These bets were given the name “Structured Investment Vehicles” and a certain Senator was convinced that congress was too stupid to understand world finance, so in went the new bill. As usual, that bill was tagged to another and it was quietly passed. Banks began trading these bets. ‘Structured Investment Vehicles’ were considered assets by the banks, but kept off the books. Banks were in essence betting that they would never have to pay any losses.

    Later banks became worried whether they might actually lose on these, so a plan was thought up and off to the insurance industry they went. It couldn’t be called insurance, since the insurance industry is regulated at both the state and federal levels. So this ‘non-insurance’, (That really was insurance.) were called ‘Credit Default Swaps’ . These contracts were “expressly” deregulated by the Federal Statute, as such could not be regulated by either the Federal Government, or the States. Insurance companies decided this was like free money and they wrote as many of these contracts as they possible. Virtually billions of dollars in these ‘Credit Default Swap’ contracts were written. Essentially betting that the assets that banks held, would never lose value.

    Insurance companies are failing now, other financial and business institutions may fail as well. Of course there are other repercussions. Such as tax payers have paid to have their public bonds insured by these very same insurance companies. In many cases insurance companies have guaranteed municipal & state obligations, or public bonds, etc. Now states and cities don’t have the insurance they need. Government agencies are being forced to go out and buy insurance through the remaining more sound insurance companies, of course at an extra premium price. This is now adding seriously to state budget shortfalls.

    So the answer is nobody knows how bad it will get. Some banks and insurance companies are still holding out on reporting these liabilities. They’ve been urged to come clean, but certainly not all have. We do know that with incredibly bad timing, petroleum companies had decided to put the squeeze on our economy in a campaign to force open drilling. This has caused things to go from extremely bad to worse. Proving they don’t care about America and since their little trick has worked with the political left now caving in, gas companies have decided to leave gas prices where they are. Make no mistake, this hit in our economy was planned long before any of the speculation kicked in. Additionally a lot of futures speculators actually are the gas companies themselves, burning both ends of the candle. Meanwhile America’s economy and her people are suffering greatly.

    I say we take all the accountants, advertising, insurance sales, oil company executives and politicians, put them on Plum Island, the government’s animal disease research island. I think it would be more cost effective to use them for experimenting. Especially since they are using us. It’s just a thought. ;)