Fannie, Freddie To Hit Uncle Sam Up For Another $50 Billion

Fannie, Freddie To Hit Uncle Sam Up For Another $50 Billion - 1/27/2009

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HEADLINE NEWS:

Fannie, Freddie To Hit Uncle Sam Up For Another $50 Billion, Mortgage Giants Need To Draw Down More Cash From Treasury's Emergency Fund
Staff Writer

FinancialWeek . January 27, 2009
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EXCERPT: Fannie Mae and Freddie Mac could tap the government for up to $51 billion in coming weeks, exceeding some Wall Street estimates, so they can continue to operate as the largest providers of funding for U.S. residential mortgages. The storm of rising delinquencies and falling securities values that led to the government’s seizure of the companies in September accelerated in the last quarter, requiring Fannie Mae and Freddie Mac to seek more of the stop-gap measures organized by the U.S. Treasury and their regulator. Analysts predicted more capital needs from Treasury through 2009. Fresh losses in the most recent quarter will probably be the harshest on Freddie Mac (FRE.P), which holds a larger portfolio of risky mortgage securities, including subprime bonds. The McLean, Virginia-based company said on Friday it may have to seek $30 billion to $35 billion in capital from the Treasury in the form of senior preferred stock. Meanwhile, a Bloomberg report claimed Fannie Mae, the largest source of home-loan money in the U.S., will need to tap as much as $16 billion in emergency funds from the U.S. Treasury Department to stay afloat as deterioration in the housing market persists. This will be Fannie Mae’s first draw on a $200 billion emergency fund set up by Treasury in September to keep the government-sponsored enterprises solvent. Fannie could see greater losses through 2009 than Freddie Mac from guarantees on mortgage-backed securities, according to analysts, including Rajiv Setia of Barclays Capital in New York. The companies have provisioned for just a third of cumulative losses on guarantees of $45 billion and $80 billion, respectively, he said. “The questions are the source of the losses and how much is set aside in reserves for future losses,” said Jim Vogel, a strategist at FTN Financial in Memphis, Tennessee, in a note to clients.

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