Fannie posts smallest loss in three years, requests $1.5B bailout

Mitchell Hartman Aug 6, 2010
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Fannie posts smallest loss in three years, requests $1.5B bailout

Mitchell Hartman Aug 6, 2010
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TEXT OF INTERVIEW

Bill Radke: Mortgage giant Fannie Mae came out with its earnings late yesterday, and it reported another loss — the company’s twelfth quarterly loss in a row. Plus, Fannie asked the federal government for another infusion of cash. If you remember, the feds took Fannie over two years ago. Marketplace’s Mitchell Hartman joins us live to talk about this. Good morning, Mitchell.

Mitchell Hartman: Good morning, Bill.

Radke: So, a loss of just over $3 billion and another bailout request from U.S. taxpayers for $1.5 billion. That doesn’t sound too good.

Hartman: Well, the positive spin, as my grandfather might have put it: “It could have been worse.” In fact, it has been worse. This is actually Fannie’s smallest loss in three years. And in the bailout column, Fannie and its smaller compatriot, Freddie Mac, have already gotten $146 billion to stay afloat. So another $1.5 billion? I don’t know, seems like a drop in the bucket.

Radke: Hahaha, quite a drop. But Mitchell, the housing market is still so lousy. When is Fannie going to stop asking taxpayers for more money?

Hartman: Well Fannie, keep in mind Fannie and Freddie together still back 9 in 10 new home loans and the government has more or less pledged to support them indefinitely. So we don’t really know when they’ll be off the dole. Mortgage delinquency rates are still near record highs, so these lenders have to set aside massive reserves to cover future losses. But, and this is an important one, the quality of loans on Fannie’s books since the financial crisis hit is actually much better. Underwriting standards were tightened way up after the problems in the mid-2000s, and so far those loans are actually performing well. The people who are getting loans are paying their mortgages, that stabilizes Fannie’s balance sheet going forward. Now, if the economy dips into recession again, you know home prices plunge another 20 percent, all bets are probably off.

Radke: Right. Marketplace’s Mitchell Hartman. Mitchell, thank you.

Hartman: You’re welcome.

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