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Fannie Mae Asks for $7.8B More From U.S.


Fannie Mae reported a third-quarter net loss of $5.1 billion and announced that its regulator would request another $7.8 billion in borrowings from the government.

The mortgage giant -- placed under government conservatorship in September 2008 along with Freddie Mac -- lost $2.9 billion in the second quarter, and $1.3 billion in the third quarter of 2010.

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Fannie's $7.8 billion deficit as of Sept. 30 reflected a total comprehensive net loss of $5.3 million, plus $2.5 billion in dividends paid on preferred shares held by the U.S. Treasury.

Following the additional $7.8 billion draw that will be requested by acting Federal Housing Finance Agency, or FHFA, director Edward DeMarco, the Treasury will hold $112.6 billion in Fannie Mae preferred shares, requiring the insolvent company to pay an annual dividend of 10%, or $11.3 billion.

Fannie Mae said that through the third quarter it had paid the government a total of $17.2 billion in dividends.

The company said the wider third-quarter loss reflected $4.9 billion in credit expenses and "$4.5 billion in fair value losses driven primarily by losses on risk management derivatives due to a significant decline in swap interest rates during the quarter," which were partially offset by $5.5 billion in net revenues.

Fannie Mae CEO Michael Williams said that despite "continued weakness in the housing market and the economy overall," the company was "making solid progress," by "growing a strong new book of business that now accounts for nearly half of our overall single-family guaranty book of business."

Williams also said that Fannie was helping "homeowners to avoid foreclosure and provide liquidity to enable working families to buy a home or secure quality affordable rental housing," and was "committed to building a stronger housing finance system for the future, and strengthening Fannie Mae to deliver value to customers, families, taxpayers, and the industry."

The acting FHFA director was in hot water this week, when Senator John McCain (R-Ariz.) complained about $12.9 million in bonuses being paid to executives of Fannie Mae and Freddie Mac, which the senator said were approved by "Mr. Edward J. DeMarco."

McCain called the FHFA's treatment of Fannie and Freddie executives ""outright corruption and blatant abuse of the American taxpayer."

The FHFA on Oct. 27 projected that at the end of 2014, "cumulative Treasury Draws (including dividends)," would "range from $220 billion to $311 billion."

The regulator is hoping to help Fannie Mae and Freddie Mac recoup some of their losses -- now taxpayer losses -- through lawsuits against large mortgage lenders whose mortgage-backed securities were purchased by the government-sponsored mortgage companies, play out.

The regulator in September sued 17 large banks -- including Bank of America (BAC), JPMorgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS), and Citigroup (C) -- to demand full rescission and recovery of losses sustained by the GSEs from the purchase of nearly $200 billion in mortgage-backed securities from the banks.

The mortgage-backed securities sales to the Fannie and Freddie by Bank of America -- including sales by Countrywide and Merrill Lynch before both companies were acquired by Bank of America -- totaled $57.5 billion, while the FHFA said JPMorgan's securities sales to the government-sponsored enterprises - including those by Washington Mutual before the thrift failed and was sold by the Federal Deposit Insurance Corp. to JPMorgan in Sept. 2008 -- totaled $33 billion.

For Citigroup, the mortgage-backed securities sales to Fannie and Freddie described in the FHFA lawsuit totaled $3.5 billion, while securities sales to the GSEs totaled $11.1 billion for Goldman, $10.6 billion for Morgan Stanley, and $3.5 billion for Citigroup.

With President Obama's expansion of the Home Affordable Refinance Program, or HARP -- which beginning early in 2012 will remove the current 125% loan-to-value ratio for refinancing of mortgage loans held by Freddie Mac and Fannie Mae -- refinancing activity is expected to accelerate, putting pressure on the government-sponsored mortgage giants' interest income and margins.

The FHFA plans to release additional details of the expanded HARP on Nov. 15.

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