Mortgage giant Fannie Mae (FNM: 1.06, 0.04, 3.92%) bled another $13.1 billion during the first quarter, prompting the U.S.-owned company to request another $8.4 billion cash infusion from the Treasury Department.
Fannie Mae, which was placed into conservatorship in 2008 amid enormous mortgage losses, said it lost $13.1 billion, or $2.29 a share, last quarter, compared with a loss of $16.3 billion, or $2.87 a share, during the fourth quarter of 2009.
The company blamed the heavy losses on credit-related expenses that remain “at elevated levels” due to weakness in the U.S. economy and the housing market.
“In the first quarter we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes,” CEO Mike Williams said in a statement.
This is a black hole and no one on either side understands the issue let alone has a solution.
The problem is without Fannie/Freddie there is no mortgage market. Banks now almost exclusively rely on Fannie/Freddie to sell their loans. The other source is FHA. So, we can't just let them fail because that would set the mortgage market into a tailspin.
The Republicans are pushing reform of Fannie/Freddie but their idea of reform is nonsensical. John McCain wants to give Fannie/Freddie five years to be self sufficient or fail. First, failure is not an option for the reasons I mentioned. Second, they could very well be self sufficient in five years.
That doesn't mean that the problems will be solved. The problems will merely be masked. The problems and solutions are simple. First, there's two of them. That's a duopoly and not economically viable. So, break them up. Second, they are extensions of the government. So, fully privatize them. It's that simple.