Another round of interesting housing news from Washington today. 

Fannie Mae reported a $2.19 billion first quarter loss due to impressive write-downs and credit costs.  Given the state of the market, that’s perhaps not such a surprise.  What’s more impressive to us is the fact that US regulators lowered the amount of capital that Fannie must hold (by lifting a consent order), and Fannie has announced intentions to raise another $6 billion in capital and cut dividends to support its mortgage market activities. 

We join the ranks of those who think that Fannie is already overextended, and these efforts to clean up the balance sheet while simultaneously taking on more risk seem almost counterintuitive. 

Looking at the numbers reported, Fannie’s income was $3.78 billion, though the entity lost $4.4 billion through losses on derivatives and trading securities, as well as $3.2 billion in credit-related expenses.

Perhaps even more impressively Fannie also reports that the fair value of its net assets dropped by $23.6 billion to $12.2 billion during the first quarter;  a change in accounting practices makes the loss appear a bit less impressive as the losses are booked only when they are realized. 

Fannie and Freddie are reported by some to buy more than 75% of all single family home loans originated in the country, bundling the securities into guaranteed bonds – guarantees that the taxpayers (all of us) hold the ultimate responsibility for. 

Election year pressures are likely to produce additional pressures in Washington to “mount a rescue” – this should get more and more interesting.

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