Original post:
From the Wall Street Journal:
From yesterday's WSJ Opinion page:Fannie Mae and Freddie Mac, already reeling in red ink, are warning they could face additional losses from the weakening condition of mortgage-insurance companies.
Fannie and Freddie together have required capital injections from the Treasury of $112 billion since the government took them over through conservatorship last year. Their need for government support would have been greater without collecting on claims from mortgage-insurance companies. Fannie and Freddie have received payouts of $2.3 billion and $658 million, respectively, from mortgage insurers through September this year.
But as conditions for mortgage insurers deteriorate, Fannie and Freddie have warned that their claims against the insurers may not be paid in full. Fannie set aside $1 billion in loss reserves to cover the possibility that mortgage-insurance companies won't be able to pay full claims, the company said in a Securities and Exchange Commission filing.
Freddie hasn't set aside reserves but warned in an SEC filing that "several" of its insurers are "at risk of falling out of compliance with regulatory capital requirements, which may result in regulatory actions that could threaten our ability to receive future claims payments, and negatively impact our access to mortgage insurance for high [loan-to-value] loans."
Ever since the mortgage crisis erupted two years ago, there have been concerns about the ability of mortgage-insurance companies to pay claims on all policies. In recent weeks, the concerns have taken on added significance as mortgage defaults continue to accelerate far beyond the subprime market into the broader prime market.
Last month, Standard & Poor's Ratings Services downgraded Mortgage Guaranty Insurance Corp., a unit of MGIC Investment Corp., the largest mortgage insurer for both Fannie and Freddie, and placed seven other mortgage-insurance companies on watch for downgrade. S&P said its move reflects "our view that macroeconomic conditions may have become more difficult for the mortgage insurers." The credit rater said it initially expected losses for the insurers to begin to narrow later this year. Instead, recent financial results indicate "mortgage insurers are experiencing a sharper and more rapid transition of delinquencies.">>>MORE
The Fannie Mae Dice Roll Continues
Losses of $400 billion are increasingly possible.
"I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing."
—Representative Barney Frank, September 25, 2003
It was six years ago that Mr. Frank announced his famous dice roll on Fannie Mae and Freddie Mac in the name of affordable housing. Mr. Frank got his wish, and the losses keep rolling in, with no end in sight as Washington finds new ways for the companies to serve political purposes.
Last week, Fannie Mae posted a quarterly loss of $19.8 billion—which believe it or not was an improvement on the $29.4 billion that it lost a year earlier. Last quarter's results came with yet another request for government aid—$15 billion worth. That brings the total tab for Fannie and Freddie to $111 billion since they were put into conservatorship in September 2008.
It would be bad enough if Fannie and Freddie's continuing losses were merely the product of bad bets made amid the housing bubble in 2006 and 2007. But the latest red ink is in large part the result of a deliberate choice to run their businesses at a loss over the past year to support White House housing policies.
The most recent losses include $22 billion of what Fannie Mae calls "credit-related expenses," which in English means foreclosure costs and losses on loans that are "worth" more than the house. Of that amount, $7.7 billion comes straight from Fannie's support of the Obama Administration's mortgage-modification program. Fannie and Freddie have been buying mortgages out of the securities they were bundled into and are then modifying the terms, which invariably means taking a loss on the loan.
Through this program, taxpayers are directly subsidizing homeowners who borrowed more than they could afford, or more than their house is now worth, or both. The government is doing this under the cover of losses at Fannie and Freddie because Congress and the White House know these programs are both expensive and unpopular with the poor saps still paying their mortgages on time.
The dynamic duo's delinquency rates also continue to climb, even on modified loans and on mortgages on which Fan and Fred have chosen to forbear from demanding repayment. The $400 billion that Congress has appropriated to keep Fan and Fred afloat, in other words, has quietly morphed from emergency aid into a $400 billion housing subsidy program. On current trends this will all be spent before President Obama is up for re-election, and, judging by the results so far, taxpayers will have little to show for it....MORE
