By Zachary A. Goldfarb
Friday, November 6, 2009
Fannie Mae, the federally controlled mortgage finance giant, said Thursday it lost $19 billion in the third quarter and had submitted a request to the Treasury Department for $15 billion in more aid to stay afloat.
District-based Fannie Mae and its McLean sibling, Freddie Mac, were seized in early September 2008 by the federal government. Since then, Fannie Mae has lost $111 billion. The $15 billion in aid it has requested comes on top of $45 billion it already received. Freddie Mac has received $51 billion in aid.
In total, the seizure of Fannie Mae and Freddie Mac has cost taxpayers $121 billion, among the costliest of the government's interventions to stabilize the financial markets.
Fannie Mae said its losses and its need for additional government aid are both likely to continue. And it said activities it was undertaking at the behest of the Treasury Department, such as modifying mortgages to help homeowners avoid foreclosure, were magnifying its losses.
Separately from its earnings announcement, Fannie Mae also unveiled a program to help homeowners facing foreclosure. Under the Deed for Lease Program, the homeowners would transfer ownership to the lender, but could stay in the home for a period of time by leasing the home and paying rent, which is often lower than a mortgage payment.
In its earnings statement, Fannie Mae said its assistance to struggling homeowners "could adversely affect our economic returns, possibly significantly." The company said it may buy home loans that pose a greater risk of default, reduce fees, refrain from foreclosing on seriously delinquent loans or lower interest rates on mortgages.
Under the Obama administration's Making Home Affordable program, Fannie Mae has a program to modify mortgage terms for struggling borrowers. "If our borrowers participate in this program in large numbers, we expect to incur substantial costs as a result of modifications of loans we own or have securitized. These costs include the incentive fees we will provide our servicers and borrowers and" other losses, the company said.
Fannie Mae's earnings report also shed new light on the growing debate over whether it should be allowed to sell low-income tax credits to Goldman Sachs.
Fannie Mae accumulated the tax credits, which are used to offset federal taxes, under a law meant to encourage firms to invest in affordable housing. The tax credits aren't useful for Fannie Mae, however, because the company isn't making a profit and therefore isn't paying taxes. As a result, the value of the tax credits on Fannie Mae's balance sheet has been declining each quarter.
Goldman Sachs, among other profit-making companies, has expressed interest in buying them. Fannie Mae said it had been approached by a group of investors interested in buying half of its tax credits at a premium. Fannie Mae said that without the sale, the $5.2 billion value of the credit would dive to zero.
Fannie Mae said it wanted to proceed with the deal and that the regulator that oversees all its business decisions, the Federal Housing Finance Agency, concurred. But the Treasury Department, which has a say in the matter because of its investments in Fannie Mae, has balked. For one, it is wary of allowing Goldman Sachs, which has recovered arguably faster than any other firm from the financial crisis and now books large profits, to skimp on federal taxes. For another, an internal Treasury analysis says that any gain for Fannie Mae -- which would be a rare bright spot for its business -- would be offset by losses for taxpayers.
"Treasury's review may encompass tax, fiscal or other considerations beyond FHFA's purview," said Edward DeMarco, acting FHFA director.