Taxpayers will fork over $10.7 billion more to Fannie Mae, bringing the company's total bailout to $44.9 billion.
Fannie's twin Freddie Mac hasn't reported its second quarter results yet, so we'll have to wait a bit to get the new total for the two, which currently stands at $95.6 billion.
Fannie lost $14.8 billion in the second quarter, the company said on Thursday. As we wrote last week, ever since the government rescued Fannie and Freddie in September, the two companies have reported huge losses every quarter. The Treasury Department then erases the deficit with taxpayer money. Fannie and Freddie’s bailout funds don’t come from the $700 billion TARP, but rather via a housing bill passed in July 2008. Treasury Secretary Tim Geithner has said that they could get as much as $200 billion each. The head of the agency that oversees Fannie and Freddie has said that he expects them to keep on losing money for another year. He also said that he didn't expect Fannie or Freddie to pay back the taxpayers in full.
The companies' losses stem mainly from the popping of the housing bubble and the recession. Together, they own or guarantee about half of all U.S. mortgages, and Fannie's earnings release says it's "experiencing increases in delinquency and default rates for our entire guaranty book of business" including less risky loans as people are hit with rising home prices and unemployment.
One thing that Fannie does not blame its losses on is the administration's foreclosure prevention program, Making Home Affordable. Loans owned or guaranteed by Fannie or Freddie are eligible for both the modification program and a special program to enable refinancing for a wider class of homeowners. But very few mortgages were modified under the program in the second quarter. Fannie mentions in its release that the program will likely hurt its bottom line in the future. Precisely how much it loses (and how much it costs taxpayers) isn’t clear; the administration’s ballpark figure is that MHA will cost Fannie and Freddie together $25 billion.
As for the companies' future, it's still up in the air. For the foreseeable future, it'll just be more losses and more tax dollars. The administration is in the brainstorming stage. One possibility aired in The Washington Post this week (and subsequently downplayed by the White House) is splitting the companies by the good bank/bad bank model. As the Post puts it: "That proposal, one of several under consideration, calls for placing the bad debts that Fannie Mae and Freddie Mac own in new, federally guaranteed financial institutions -- or bad banks -- that would take responsibility for collecting as much of the outstanding balance as possible and put the government on the hook for any losses."
Other bailout links this morning:
Mortgage Giants' Revamp Disputed (WaPo)
AIG Swings to Profit (WSJ)
Wells Fargo Skirts TARP to Raise Pay Aid (WSJ)
Bank of America Settlement Hits Snag Over Money's Source (WaPo)
Morgan Pays $950 Million for TARP Warrants (NYT)