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Consumers feel Fannie Mae’s pain
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KAI RYSSDAL: Today was Fannie Mae’s turn for the quarterly corporate ritual known as the earnings report. Usually what happens is THAT the CEO gets on the conference call with Wall Street analysts. He or she then says a few things that are basically boilerplate — no matter how bad the numbers. Fannie Mae CEO Daniel Mudd departed from that script this morning. During the call he announced a $2.3 billion loss for the quarter that ended in June.
DANIEL MUDD: In the market, the conditions which many of us had already described as the worst in a generation took a turn for more worse after the quarter ended.
It helps to remember here that the big crisis over Fannie and its cousin Freddie Mac happened on the first couple of weeks of July. So with that as a backdrop, some are wondering what’s next for the housing market and for the American economy. Marketplace’s Steve Henn reports.
STEVE HENN: Fannie Mae has lost almost $10 billion in just one year. That’s put a huge strain on the company’s balance sheet. Thomas Lawler is a mortgage industry analyst and a former Fannie Mae executive.
THOMAS LAWLER: They are going to have to be incredibly judicious in the use of capital and conserving capital.
Basically the company doesn’t have a lot of cash left. Together Fannie Mae and its twin Freddie Mac insure $5 trillion in mortgages. Both have more than $800 billion in assets but almost that much in liabilities.
The Congressional Budget Office estimates a bailout could cost U.S. taxpayers $25 billion. But . . .
WILLIAM POOLE: $25 billion is peanuts given the scale of these firms.
William Poole is the past president of the St. Louis Fed. He believes a bailout’s likely. And he says putting both firms on solid financial footing would cost a fortune.
POOLE: We’re talking in round numbers of, you know, $50 [billion], $70 [billion], even a $100 billion each.
Instead, Poole would like to see the government take over Fannie and Freddie and dismantle their businesses before the situation gets worse. But in the meantime, Lawler says American consumers are feeling the effects.
LAWLER: Already we’re seeing mortgage rates that are higher than otherwise, and it is simply a lot harder to get a mortgage.
And it’s not going to get any easier. Fannie Mae said today it would stop buying low documentation loans — these are the so-called liar loans that got them into trouble in the first place.
In Washington I’m Steve Henn for Marketplace.
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