Mortgage giants could cost U.S. $685 billion

(Kin Cheung)
Friday, November 5, 2010

Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the United States covers losses and overhauls the housing-finance system, Standard & Poor's said Thursday.

Costs for resolving the companies could reach $280 billion, including $148 billion already delivered under a U.S. promise of unlimited support, S&P said in a research report. The government may spend another $405 billion to capitalize a replacement for the two companies, which own or insure more than half of the U.S. mortgage market.

"It appears unlikely in our view that housing and mortgage markets will be able to operate normally without continuing and substantial government involvement," S&P said, citing the companies' growing portfolio of unsold homes, a sluggish economy, high unemployment, rising foreclosures and billions in legacy losses.

The Federal Housing Finance Agency, which oversees the companies, said last week that they could need as much as $363 billion in taxpayer aid - including funds already delivered - through 2013. The actual total cost to the Treasury would be $259 billion, because almost 30 percent of the funds would come back to Treasury as dividend payments on its holdings of senior preferred stock.

S&P's estimate included projected outlays from Treasury to Fannie and Freddie, but did not factor in the dividend payments.

- Bloomberg News

J.P. Morgan Chase set to resume foreclosures

J.P. Morgan Chase plans to resume foreclosures in a couple of weeks, a company official said Thursday.

Charlie Scharf, chief executive of J.P. Morgan's retail financial services unit, said during a conference with analysts in Boston that the company's review had found some issues such as "robo signing" and that it is being very stringent in double-checking documents. However, he said, the bank risks the loss of millions of dollars for each month that foreclosures are delayed, so it hopes to begin refiling soon. J.P. Morgan froze foreclosures in 40 states affecting about 127,000 loans.

Bank of America recently began restarting some foreclosures, and Ally Financial has been unfreezing foreclosures on a case-by-case basis as individual files are cleared.

- Ariana Eunjung Cha

Also in Business

l Starbucks profit surges: As more people visited Starbucks cafes and spent more at the end of summer, the company's fourth-quarter net income nearly doubled, handily beating estimates, and the company raised its target Thursday for fiscal 2011 profit.

The cafe chain earned $278.9 million, or 37 cents per share, in the quarter ended Oct. 3, up from $150 million, or 20 cents per share, a year earlier. Revenue rose 17.2 percent to $2.84 billion.

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