FHA and Fannie Mae: We'll never get our money back

We, the taxpayers, are the only mortgage lenders left. And, we're losing a fortune.

Fannie Mae and the FHA are giant money holes. Our leaders keep throwing billions into these bottomless-pits because it's for our own good.

FANNIE MAE

In the recent quarter, Fannie Mae reported a $18.9 Billion Loss and asks for another $15 Billion. From Fannie Mae

Fannie Mae reported a net loss of $18.9 billion in the third quarter of 2009, compared with a loss of $14.8 billion in the second quarter of 2009. Including $883 million of dividends on our senior preferred stock held by the U.S. Department of Treasury, the net loss attributable to common stockholders was $19.8 billion, or ($3.47) per diluted share, in the third quarter of 2009, compared with a loss of $15.2 billion, or ($2.67) per diluted share, in the second quarter of 2009. Third-quarter results were largely due to $22.0 billion of credit related expenses, reflecting the continued build of the company’s combined loss reserves and fair value losses associated with the increasing number of loans that were acquired from mortgagebacked securities trusts in order to pursue loan modifications. The loss resulted in a net worth deficit of $15.0 billion as of September 30, 2009, taking into account unrealized gains on available-for-sale securities during the third quarter. As a result, on November 4, 2009, the Acting Director of the Federal Housing Finance Agency (FHFA) submitted a request for $15.0 billion from Treasury on the company’s behalf. FHFA has requested that Treasury provide the funds on or prior to December 31, 2009.

...

We expect that our credit losses and credit loss ratio will continue to increase for the remainder of 2009 and during 2010. However, we also believe that, absent further economic deterioration, our credit-related expenses will be less in 2010 than in 2009.

I believe that, absent further economic deterioration, the economy shouldn't get much worse. What a ridiculous statement.

FHA

This month, the FHA is going to release findings from it's annual audit. It's widely expected that the report will show that the agency's reserves will have fallen below their federally-mandated level, requiring a bailout from the taxpayers. We've been writing about this for some time. See FHA: The Next Bailout, What is The FHA’s Mission?. and FHA’s cash reserves to drop below minimum requirement.

The Wall Street Journal reports

Although the FHA has tightened credit standards, many of the 2007 and early 2008 mortgages are going bad. The agency expects defaults on 24% of all loans insured in 2007, and 20% of those backed in 2008. "The orders from Congress and us were clear: We want to save as many families as we can, recognizing that a lot of loans people were looking to refinance out of should never have been made in the first place," said Brian Montgomery, who served as the agency's commissioner for four years ending in July.

...

The report is likely to reignite a debate over how aggressively the government should move to prop up the housing market by providing a steady source of mortgages that require little money down. The FHA, which doesn't make loans but insures lenders against losses if a borrower defaults, is guaranteeing half of all home-purchase loans in some of the nation's hardest-hit housing markets. That is helping to heal housing markets but puts taxpayers at risk if home-price declines resume.

Orders from Congress??? We ask: Did the FHA make bad loans with taxpayer money to prop up home prices? But the report has been delayed.

From The Washington Post FHA delays the release of disputed audit of its finances

The Federal Housing Administration abruptly delayed the release of a long-awaited independent audit of the financial soundness of the agency, citing potential problems with the accuracy of some of the study's economic models. The audit, compiled by Integrated Financial Engineering of Rockville, was scheduled to be released Wednesday, and the agency's top officials planned to brief reporters on its results. But on Tuesday evening, the agency postponed the event, saying the report had yet to be finalized. In a separate statement Wednesday, FHA Commissioner David H. Stevens said the delay was related to economic scenario tests that the agency requested "above and beyond" what was originally to be included in the audit so that the FHA could "better understand a broader range of risk scenarios."

In other words: the report is going to be very ugly and they'd better be sure it's right. For an increasingly-accurate take on the situation, consider: In The Know: Should The Government Stop Dumping Money Into A Giant Hole?