Are patron saints Freddie Mac and Fannie Mae in need of their own share of saving grace? Bush & Company are strapping on their broken wings and affixing dented halos while nervously awaiting a mercy mission. As home prices have tanked to the depths of hell and banks shied away from lending, the government has canonized to Freddie and Fannie as saviors, investing them with enough power to handle 80 percent of all mortgages bought by investors in the first quarter of 2008.
However, Freddie & Fannie— who were created by Congress, owned by investors, and exist under the perception that the government will intervene should either fail— reported a loss of $2.2 billion or ($2.57 per share) compared with a profit of $961 million (85 cents per share) a year ago. This is bad. Both suffered a combined $9 billion in mortgage-related losses last year, and analysts suspect that the companies have sustained billions of dollars of unreported losses. Bottom line: If either company bottoms out, the market loses its buffer, and taxpayers (that's us!) will be the unwitting angels sent down from the government to lift them up.
Net result? The government has leveled acute threats against both companies— a public shaming shall arrive in short order should both companies fail to raise capital post haste. In their own defense, Freddie & Fannie claim that they've reported regulatory findings that actually reveal a $7 billion safety net. No matter, say critics, many of who believe that considering a government bailout isn't such a bad idea at the moment given a series of events, some rather sordid, that led up to the Fannie & Freddie's current woes.
Commence with the heavy sweating.
· New Price Drop Could Imperil Mortgage Agencies [NYT]
[Graphic courtesy Office of Federal Housing Enterprise Oversight via NYT]