Fannie Mae: Now How Much Would You Pay?

It seems like it was just five days ago that you had to pony up another $10.6 billion for the government-owned mortgage guarantor Freddie Mac, after the former GSE reported an $8 billion loss.

I hope you got your money's worth, because today Freddie's moronic fraternal twin Fannie Mae is hitting you up for another $8.4 billion, having managed to lose more than $11.5 billion in the first quarter -- plus a $1.5 billion dividend it paid to the Department of the Treasury for assistance, bringing its total lose in the quarter to $13.1 billion.

The bad news is that that's the good news. Fannie lost nearly twice as much -- $23.2 billion -- in the first quarter of 2009. All told, the failed mortgage underwriter lost a whopping $72 billion last year.

The worse news is that there is no conceivable end to these losses. In their mania to avoid letting real estate values reach market-clearing levels, the Bush and Obama administrations have effectively made the entire American home mortgage industry into a de jure government operation. All but a tiny fraction of mortgages in the United States are now taxpayer-guaranteed. More than half of the Federal Reserve Bank's portfolio now consists of mortgage-backed securities.

And defaults on those mortgages are not stopping. There was a slight decline in Alt-A defaults in February, and California also saw defaults drop a tiny bit during the first quarter, but the default rate is still up year-over-year. The taxpayers are on the hook for 96.5 percent of those defaults. First American CoreLogic says 28 percent of all mortgages have near-negative or negative equity. And even if a jobless economic recovery so anemic it's not clear it should be called a recovery at all could somehow get a portion of bad borrowers back on their feet, it can't do anything to reinflate house prices, which is the only way the default tide can be reversed.

But don't take my word for it. Take Fannie Mae's [pdf]:

Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future. As a result of these factors, there is significant uncertainty as to our longterm financial sustainability.

We can't go on like this. Leaving taxpayers on the hook for this continuing disaster isn't just unfair. It's economically ruinous. And nobody in the Treasury Department, the Fed, or the administration has anything resembling an exit strategy.

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  • JB||

    Time to buy more guns & ammo.

  • Suki||

    I'm with you and I predict MNG will say something gay.

  • MNG||

    I'm spreading my ass cheeks as wide as I can. I'm sure Obama can stick it in further.

  • SIV||

    I wish Reason cwould ditch the threaded comments. The format seems to encourage more crap commenting

  • barfman||

    *barf*

  • MNG||

    It's all the fault of that damn cat. I wish I could quit him.

  • &||

    But now it's Ignore-A-Troll Tuesday®!
    Rejoice and be free!

  • AA||

    Please correct me if I'm wrong, because I'm still learning about this. But if they stopped trying to prop up real estate prices and let them fall to market levels, wouldn't that mean a bunch other people would be able to give home ownership a chance who otherwise would not have been? Seems like that would be a good thing. Maybe these new home buyers would learn what types of loans not to take out, and said loans would be exposed for the bad deals that they are?

  • Almanian||

    Hey, hey, HEY! That's just crazy talk.

  • ||

    Welcome to the Reality Sphere. Prepare to feel lonely.

  • ||

    The Fed is still holding something like a trillion in mortgage backed securities.

    Some day either those securities or the houses behind them are all coming back on the market. Whether that should happen all at the same time is a debatable question, I guess, but I haven't kept up on what's been happening with those securities now...

    I'm sure they hope people will refinance out of those securities, but that seems like wishful thinking since... A lot of these were subprime, and if "subprime" doesn't mean a lot of people who might have trouble getting a refi, then what does it mean? Especially if interest rates climb in the near future, why would you refi into a higher rate unless you had to?

    I know regulators were pushing banks to renegotiate a lot of the loans they were holding, but I'm not sure the government's been following suit. The last two big investment houses that bought huge subprime portfolios to work through that way, well, that was what killed Bear and Lehman. We shouldn't assume we're not gonna lose money just like they did. ...and why would anyone buy them to work through if the government wasn't being reasonable about the purchase price?

    Ultimately, we're probably going to need an RTC type mechanism...

    http://en.wikipedia.org/wiki/Resolution_Trust_Corporation

    ...but that may not happen until Obama leaves office since selling those assets will reveal the totality of the taxpayers' losses. I think they're being carried on the books at par or whatever we paid for them right now--and there's no way they're worth that...

    They may not be priced as badly as they were when Lehman and Bear bit the dust, but it's gonna be close to that. And why would a president who was instrumental in that whole thing set himself up for such a big write-down at the taxpayer's expense?

    The Obama Administration is so incompetent, they're probably not even thinking about that right now--but when it comes up, they will.

    In the meantime, those "investments" are just gonna sit there like a millstone around our necks. That would be an excellent campaign issue for 2012, actually, we can go the way of Japan Inc. in the wake of the S&L crisis, which they didn't recover from for 25, 30 years or so, or we can bite the bullet, which is probably the smart thing to do...

    Obama isn't gonna take that kind of pain on himself by doing the smart thing for the country though--no way. So I think we're stuck until at least 2012--unless something like Greece happens here and forces our hand. Nothing makes people deal with reality like reality, and it's always out there waiting to assert itself.

  • AA||

    "I'm sure they hope people will refinance out of those securities, but that seems like wishful thinking since... A lot of these were subprime, and if "subprime" doesn't mean a lot of people who might have trouble getting a refi, then what does it mean? Especially if interest rates climb in the near future, why would you refi into a higher rate unless you had to?"

    I doubt anybody is gonna refinance a house thats not even close to being worth the original loan.

  • ||

    Yeah, so there are a lot of good reasons to think that the problem isn't gonna refinance itself away, which leaves us with a $1.1 trillion gorilla in the room that no one seems to be talking about.

    And I'm not saying something like RTC is the way to go, by the way, that wouldn't be my first choice, but I think that's what's most likely to happen in the next 2-6 years.

    Most commenters here talk about what they think should happen, I tend to talk about what I think is really gonna happen, and sometimes that gets lost in the telling, but, yeah, if the problem isn't about to refinance itself away, then we can let it fester or we can do surgery, either way, it's gonna hoit.

    There are lots of reasons to think the Obama Administration isn't going to do anything too. There are some of the political considerations I mentioned, and there's the fact that he doesn't have anybody with an industry or business background anywhere in his cabinet--and it shows.

    I don't think he'd recognize the best solution if it stung him on the ass. Like I said, I don't think he even recognizes that there's a problem there, much less cares about what the solution is. Reality is just a never ending series of opportunities to push whatever's already on his agenda to him. And the agenda's about politics--and nothing else.

    Can I get a "DOOOOOM!", Warren?

  • AA||

    Why would Obama care to do anything when he can just keep blaming Bush, and all of his minions just follow along with the chants? :)

  • Russ 2000||

    Obama's entire life has been non-committal, why would he change now?

  • TP||

    Do not fret, Toxic Timmaaaayyyy and Helicopter Ben have an exit strategy on all of those 13(3) loans (Maiden Lane I, II and III).

  • an aggressive three||

    Like you I'm "still learning" but I think the argument would be that people who are trying to sell their homes would take a MAJOR hit on their investments if they sold their homes at so-called reasonable levels since THEY bought at obscene prices.

  • ||

    They bought them at obscene prices because:

    A) Someone gave them what they essentially treated as free money. Someone gives you free money, and odds are, you will squander it.

    B) People, after buying these obscenely overpriced houses (which is not every area, where I live, flyover country, ARMs were not offered; that does need to be stated) people either wanted to maintain their standard of living or even increase it. At the same level of income or at modest increases in income.

    The progressive mindset would say, "Well, they gave the first time homebuyer a way out of renting, the American Dream. The greedy banks and mortgage companies wouldn't so much as give these noble people with poor credit a chance."

    Yeah, and then they did. And according to the article and the pdf, it effective destroyed the financial fabric of the country. It's almost like the French Revolution, except the government, in this case, incited the peasant rebellion and conveniently excused themselves from both blame and harm. And the financial sector, instead of getting the guillotine, is instead being slow poisoned via a delicious Margaritas laced with ethylene glycol.

    And when it keels over, that will the shot of tequila felt around the world, and won't be anywhere as pleasant.

  • TP||

    I don't disagree but also, interest rates were too low for far too long. This created a larger demand for Real Estate which also drove prices up. Owning a company in the building trades, I can tell you, these fuckers couldn't put them up fast enough for the well qualified buyers, let alone the shit ones.

  • AA||

    "Well, they gave the first time homebuyer a way out of renting, the American Dream." I thought the American dream was working for our own house, not having someone else give it to you? Call me crazy...

  • ||

    We had to destroy affordable housing to save it.

  • ||

    Bud: Credit is a sacred trust, it's what our free society is founded on. Do you think they give a damn about their bills in Russia? I said, do you think they give a damn about their bills in Russia?
    Otto: They don't pay bills in Russia, it's all free.
    Bud: All free? Free my ass. What are you, a fuckin' commie? Huh?
    Otto: No, I ain't no commie.
    Bud: Well, you better not be. I don't want no commies in my car. No Christians either.

  • ||

    We can't go on like this.

    I think you will be amazed at how long they will keep this up. Their ideal target is "indefinitely".

  • ||

    Just like the Perpetual Motion Machine (tm).

    They might as well admit at this point they are Juan Ponce de Leon and they have figured out the fountain they found and thought was working is a sham and they were looking into a funhouse mirror the whole time.

    The difference here is they still think they are still beautiful and the water still has magic properties.

  • Bush I/Bush II/Obama||

    The economy is recovering! Quit talking it down!

  • Max||

    Well, gee, Tim, lets establish Libertopia > No taxes > No tax payers to be holding the bag. And the neat thing about Libertopia is it has never ever failed. Since no real libertarian policy has ever been implemented, libertarian hands are clean!

  • ||

    CHICK AND BULL SOUP

    150 Minutes to Prepare and Cook

    Ingredients

    Fry chicken legs(as many as you want) with beef, about a pound
    Add one 14 ounce can of tomaoes
    1/2 package of onion soup mix
    1 cup of V-8 low sodium juice
    1/3 cup steak sauce
    1 chicken bullion cube
    one onion
    some potatoes
    fresh green beans
    few carrots,to your liking
    corn,one small can
    2,3 handfuls of small peas,frozen
    1/2 teaspoon of pepper
    2 tbl. worchester sauce


    Directions
    This recipe can be done in the crockpot or on top of stove for quicker results.

    Number of Servings: 1

  • cynical||

    This recipe crap is more annoying than the trolls. If people want to ignore them, we have the technology. Personally, a ratings system for comments would be more useful (with the ability to rate them not just as "bad" or "good", but, e.g., "trolling" or "spambot" or "WTF").

  • Byron||

    I love the 'recipe crap'!

  • ||

    Does Max know what a non-sequitur is?

    Because he seems to be employing them quite alot these days...

  • Jeffersonian||

    And wait...are these the folks that are so good at running things that they are taking the time to tell me how to live my life?

  • Nancy Reagan||

    And nobody in the Treasury Department, the Fed, or the administration has anything resembling an exit strategy.

    I do: "Just Say No."

  • ||

    Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future.

    Does this mean their political contributions are classified as ordinary operating expenses?

  • j||

    I don't mean to advocate the building of more aircraft carriers. But as an eye-level measure of what a billion dollars is ... that would be one aircraft carrier.

    We gave 5 aircraft carriers, via the IMF, to Greece last week. We've given 500 aircraft carriers to crappy banks and loan defaulters over the last two years. Another 10 aircraft carriers are needed to sure up Freddie Mac. The US Navy has a fleet of 13 aircraft carriers.

  • Kolohe||

    A late model Nimitz carrier is closer to four and half billion. The Ford is likely to come in over 6.

  • Drax the Destroyer||

    Does that include aircraft or not? I'm guessing not since the aerospace industry thrives on overpriced/uneeded products. Also, an aircraft carrier without aircraft is pretty fricking worthless as a military platform.

  • Ivan||

    "And nobody in the Treasury Department, the Fed, or the administration has anything resembling an exit strategy."

    Why would you expect them to have an exit strategy? They have no intentions of relinquishing control of the home mortgage market. Just think of how much worse things would be if they weren't making sure everything is fair and equitable. Chaos I tell ya, it would be complete chaos. Thank God for the government and it's infinite wisdom.

  • ||

    And nobody in the Treasury Department, the Fed, or the administration has anything resembling an exit strategy.

    Any day, now, they'll announce a plan to buy houses for cash (at full loan value plus twenty five per cent) and bulldoze them.

  • Terry Hoskins||

  • Renters||

    How long are we going to put up with this shit? We do make up 1/3 of the population.... Oh.

  • Ghost of Schrödinger's cat||

    I just ran away from home
    Now I'm going to dizz knee land
    I just crashed my car again
    Now I'm going to dizz knee land
    I just robbed a grocery store
    I'm going to dizz knee land
    I just flipped off President George
    I'm going to dizz knee land

    I just tossed a fifth of gin
    Now I'm going to dizz knee land
    I just got cuffed a gin
    Now I'm going to dizz knee land
    Shot my gun into the night
    I'm going to dizz knee land
    I just saw a good man die
    I'm going to dizz knee land

    Hey

    Kicked my ass out of school
    Rolled me out into the street
    Hitched a ride on a monkey's back
    Headed west into the black

    I'm going to dizz knee land

  • Krugmanstein||

    CAPITALISM BAD. DEBT GOOD. GOVERNMENT SPEND MORE! MORE!!!!

  • ||

    STEVE SMITH NEVER THINK STEVE SMITH FIND ONE TRUE LOVE. STEVE SMITH WRONG.

  • Ivan||

    You have to check this out. It will give you an idea of how fucked up these people really are.

    From Ag Week: "Noting that USDA’s rural development business loan programs have a default rate of 1 percent, Vilsack said that rate is too low."
    http://www.agweek.com/event/article/id/16330/

    How the hell can a low default rate be a problem? But not to worry, they plan on fixing the "problem" and getting it up to a respectable level. This shit is unbelievable.

  • skr||

    woot!!! I'm part of that tiny fraction. Wait, does that make me a sucker?

  • ||

    Looks like I picked the wrong week to quit drinking rubbing alcohol strained through toast.

  • Parker||

    That toast will kill you.

  • Max||

    Tm Cavanaugh is a doctrinaire losertarian hack.

  • BakedPenguin||

    I didn't know he was trademarked. Cavanaugh™!

  • ||

    Max is a mentally deficient masochist with no life.

  • Byron||

    Recipe, stat!!

  • IceTrey||

    Here's your exit strategy. Global economic collapse, followed by Great Depression II. It's too late. We're too far down the rabbit hole to find a way out now.

  • Drax the Destroyer||

    Looks like my Y2K bomb shelter stocked with shotguns and grenades will finally come handy. Now I just need to stock up on ludicrous amounts of porn and soylent green. See you bastards at the end of the rainbow.

  • ||

    Tortillas and beans, you can live on them forever.

  • ||

    Tortillas and beans, you can live on them forever.

  • ||

    I just saw the rabbit. He ran up, grabbed me by the lapels and screamed " Where the **** ARE we?"

  • &||

    The amount of bailout--I mean aid--given to Greece over the weekend is just about the same as that given to Fannie and Freddie so far. Nice.

  • ||

    Case in point. House on my street sold for $380K in '05, which was not out of line with previous sales, the size and quality of the house. Guy gave it to Fannie Mae for what his mortgage was, $304K at the end of '09. Without putting it on the market or at auction, or even listing it with a realtor, Fannie sells it 5 months later for $155K - to the township assessor, no less. The house would have been listed for more than $300K by any realtor in town.

  • Jayo||

    A search of the Fannie Mae pdf doesn't yield the quote, can you (or anyone) supply a page number?

  • Tim Cavanaugh||

    13

  • ||

    Sell it.

  • Jason||

    All but a tiny fraction of mortgages in the United States are now taxpayer-guaranteed.

    How much and which ones?

  • ||

    Pass me the Vaseline...if there's any left. Now I understand why the WH won't repeal "Don't Ask Don't Tell".

  • دردشة||

    thanks

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