Sunday, November 8, 2009

Taxpayer will pay for Freddie Mac $5 Billion Loss Third Quarter

Freddie Mac posts $5 billion loss - Yahoo! News

NEW YORK (Reuters) – Freddie Mac (FRE.N) (FRE.P), the second largest provider of U.S. residential mortgage funding, on Friday posted a loss of $5 billion in the third quarter and predicted it would need more government support amid a "prolonged deterioration" in housing.
Increases in the value of securities Freddie Mac held over the period helped buoy its net worth, however, erasing its need to tap government funds for a second straight quarter to stay solvent while continuing to buy and guarantee home loans.
Including a $1.3 billion dividend payment on senior preferred stock bought by the Treasury in previous quarters, Freddie Mac's third-quarter loss increases to $6.3 billion.
The home funding company's loss comes amid a rise in provisions for credit losses to $7.6 billion in the quarter, up 46 percent compared with the previous quarter, as delinquencies worsened on loans it guarantees. Provisions will remain high this quarter, it added.

Federal Government making us give more of our future wages.

On September 7, 2008, the director of the Federal Housing Finance Agency (FHFA), James B. Lockhart III, announced his decision to place two Government sponsored enterprises (GSEs), Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), into conservatorship run by the FHFA.

At the same press conference, United States Treasury Secretary Henry Paulson, stated that placing the two GSEs into conservatorship was a decision he fully supported, and that he advised "that conservatorship was the only form in which I would commit taxpayer money to the GSEs." He further
said that "I attribute the need for today's action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction."
In 1970, FMae was privatized so as to remove it from the federal budget and Freddie Mac was established the same year. As government sponsored organizations (GSEs), neither paid local or state taxes, they were exempt from Securities and Exchange registration and fees, they were permitted to operate with lower reserves than banks, and they could each borrow up to $2.5 billion directly from the U.S. Treasury at low interest. The faith that they were backed by the government and operated so cheaply gave them access to massive sums of low-interest money looking for both profits and security.

This proved so profitable that banks and other lenders packaged their loans into bonds, sold them on the market for that quick profit (especially the agent rake offs), loaned out those replenished funds,
and did this over and over again with riskier and riskier loans as housing prices climbed higher and higher and security requirements werelowered to essentially nonexistence.

What It Could Mean for You

The ramifications of this history are many. If Fannie Mae and Freddie Mac fail and can't back loans
anymore, interest rates will go up.
Banks won't be originating as many loans because they don't have the guarantees they once did.
This means the number of homebuyers will drastically shrink, both because banks won't be authorizing as many mortgage loans and because the ones they do authorize will be out of reach for many homebuyers (higher down payments, higher interest rates, smaller loan amounts).
If the government completes a bailout, as looks more and more like the case, it would use taxpayer money to pay for buying stocks in the companies. It could cost up to $1 trillion in taxpayer money, which likely means higher taxes.
More importantly, it could damage the creditworthiness of the United States, making future loans to the government more difficult to obtain.
With the national deficit at nearly $10 trillion, the only thing going for the US is its credit rating. And when that goes....

Obama and Democrats are Responsible: Fannie Mae/Freddie Mac

More post from Wag this Dog
Ferderal Government will Loose Billions from General Motors and Chrysler
President Obama Grew Deficit by $181 billion in July
Obama Misleading and Outlandish about Health Care Reform

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