Fannie Mae asks for $2.5B in new government aid

WASHINGTON (AP) — Government-controlled mortgage buyer Fannie Mae is asking for $2.5 billion in additional federal aid after posting a narrower loss in the third quarter.Fannie Mae also said Friday it was likely that the market disarray and suspension of foreclosures due to big lenders’ problems with flawed documents will have a negative impact on the delinquency rates of its loans, its expenses and foreclosure timelines. However, the company said, “we cannot yet predict the extent of its impact.”

Fannie Mae said Friday it lost $3.46 billion, or 61 cents a share, in the July-September quarter. That takes into account $2.1 billion in dividend payments to the Treasury Department. It compares with a loss of $19.8 billion, or $3.47 a share, in the third quarter of 2009.

The government rescued Washington-based Fannie Mae and sibling company Freddie Mac about two years ago and it estimates that will cost taxpayers up to $259 billion. That’s nearly twice the $133.4 billion Fannie and Freddie are in line to receive from taxpayers so far and would make it the most expensive bailout of the financial crisis.

The $2.5 billion in additional aid that Fannie is asking for compares with a request for $1.5 billion in the second quarter.

Fannie and Freddie together have repaid $16.7 billion as dividends to the Treasury Department.

Fannie’s chief executive said Friday the latest results reflect ongoing efforts to contain losses from the high-risk mortgages it bought from 2005 to 2008 and to build up new, more profitable loan business with tighter lending standards.

McLean, Va.-based Freddie Mac reported Wednesday that it managed a narrower loss of $4.1 billion for the third quarter and asked for an additional $100 million in federal aid — far less than the $1.8 billion it sought in the second quarter.

But neither Fannie nor Freddie are out of the woods yet.

The two mortgage giants have been hit by massive losses on risky mortgages purchased from 2005 through 2008. The companies have tightened their lending standards after those loans started to go bad, and default rates on new loans are far lower.

The housing market, however, remains a huge challenge. High unemployment, tepid economic growth, tight credit and uncertainty about home prices have kept people from buying.

Add to that the uncertainty stemming from allegations that big lenders used flawed foreclosure documents to seize millions of homes, a controversy that could put added scrutiny on Fannie and Freddie and bring fresh losses for them.

Fannie and Freddie used some of the same law firms that are accused of processing foreclosure files with flawed documents. They are revoking thousands of foreclosure cases from one Florida law firm which is under investigation for falsifying documents used to complete foreclosures.

Several major banks have been accused of similar conduct. If the banks can’t resolve their foreclosure problems and are barred from seizing many homes, Fannie and Freddie could absorb huge losses on loans they own or guarantee. That’s because they would no longer be able to recover anything on loans that have gone bad.

Fannie and Freddie buy up home loans from lenders, bundle them together into securities with a guarantee against default and sell them to investors worldwide. They own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion.

Fannie Mae reported its earnings three days after midterm elections in which criticism of the government’s financial bailouts had figured prominently in many races. Fannie and Freddie have many critics, especially among Republican lawmakers whose party gained control of the House in Tuesday’s elections.

Over the next year, lawmakers plan to review the nation’s mortgage-lending system and consider a potential replacement for Fannie and Freddie. The financial overhaul signed by President Barack Obama in July didn’t address that issue, despite protests from Republicans that it was incomplete without such a plan.

An analysis issued Thursday by Standard & Poor’s found the total eventual cost to taxpayers of rescuing Fannie and Freddie and funding new entities to replace them could reach $685 billion.

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Tax credit pushes April home sales up 7.6% from March

By Stephanie Armour, USA TODAY

Existing home sales jumped in April as buyers rushed to take advantage of home buyers tax credits before they expired last month.Sales increased 7.6% to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, according to a report Monday from the National Association of Realtors (NAR). That’s 22.8% above the 4.70 million-unit pace in April 2009.

Economists attribute much of April’s boost to buyers’ scramble to buy homes before the deadline for the tax credit, which provided up to $6,500 for move-up buyers and up to $8,000 for first-time buyers. Sales are expected to weaken after June.

“I thought the market would get a nice impact (from the tax credit),” says Lawrence Yun, chief economist with NAR. “But (growing) inventory is raising a little concern. It could put downward pressure on prices. Through June, sales will be elevated, and after June, measurably lower.”

The national median existing-home price was $173,100 in April, up 4% from April 2009. Distressed homes, which include those sold at foreclosure or short sales, accounted for 33% of sales last month. Distressed properties tend to bring down overall home prices.

Total housing inventory at the end of April rose 11.5% to 4.04 million existing homes available for sale, which represents an 8.4-month supply at the current sales pace, up from an 8.1-month supply in March.

The recent rise in home sales is attributed to other factors along with the tax credit. Home prices in general have fallen so low that they’re luring more buyers.

Mortgage rates also have hovered around a low 5%, making it an attractive time to purchase a home, says Stuart Hoffman, chief economist at PNC Financial Services.

“Everything sort of just lined up,” Hoffman says. “You had a very active market. (But) the upward momentum won’t be sustained at this pace.”

Joel Naroff, at Naroff Economic Advisors, says he expects sales will fall fairly sharply in the next couple of months.

“We are going to get a couple of months of softer sales,” Naroff says. “But there are enough factors out there to provide growing sales throughout the year. I also think prices are going to go up.”