Fannie Mae ask for more money

Fannie Mae in need on money

For the fourth time, Fannie Mae, the US mortgage finance firm has asked for state aid, for the sum of $15 billion. This comes after it announced that it lost $19.8 billion between the months of July and September, in the ninth consecutive quarterly loss. This drove its net worth below zero.

Last year, both Fannie Mae and fellow mortgage giant Freddie Mac were taken under government control.

The loss at the government-run mortgage financier was largely due to $22 billion of credit expenses as the company built its loss reserves against mounting mortgage defaults. Fannie Mae also incurred losses from modifying the terms of mortgages for struggling borrowers under the government's housing market rescue plan.

Fannie's latest request takes the amount that the pair have requested from the US Treasury to more than $100 billion. Since Fannie Mae was taken over by the government, it's suffered losses of $111 billion

It said it would use additional government aid to cover future losses on bad mortgage loans, as well as helping to cover its third-quarter losses.

Fannie's third-quarter net loss of $3.47 a share forced it to request its fourth instalment from a $200 billion federal lifeline established for Fannie and rival Freddie Mac, the mortgage financier said in a filing. The rescue funds will bring the Treasury's ownership of senior preferred stock in Fannie Mae to a total of $60.9 billion, Financial Times states.

Rescue plan

Fannie Mae and Freddie Mac buy mortgages from approved lenders then sell them to investors. Together, they underwrite more than half of all US mortgages, worth more than $5 trillion, the BBC reports.

The firms hit difficulty after lowering their lending criteria for borrowers during the housing boom. Under a rescue plan passed by Congress in July last year, the US government gained the right to provide unlimited liquidity to the two companies and to buy their shares, to prevent them from collapsing.

Next year, will see the US government unveiling its plans for the two mortgage giants. According to some analysts, its options are limited.

"It appears evident that they will remain under [government control] indefinitely," said Rajiv Setia at Barclays Capital in New York. "There is no way to privatise them in this environment. It could actually be a full decade before something like that happens."

Talks

Fannie Mae is currently in talks to sell about half of a $5.2 billion portfolio of low income housing tax credits to third party investors in an effort to improve its financial position. Those investors, which according to people familiar with the talks include Goldman Sachs, would receive the benefit of the tax credits for a limited time before they would revert to Fannie Mae.

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