The Associated Press February 24, 2011, 8:35PM ET

Fannie, Freddie narrow losses in Q4

Government-controlled mortgage buyers Fannie Mae and Freddie Mac on Thursday reported narrower losses in the final three months of last year, but each asked for more money from taxpayers.

Fannie Mae posted a loss of $2.1 billion for the October-December quarter, after payment of $2.15 billion in dividends to preferred stock that is mostly owned by the federal government. It has requested an additional $2.6 billion in federal aid, slightly more than the $2.5 billion it sought in the previous quarter.

Freddie Mac managed a $1.7 billion loss for the final quarter of last year, after the payment of $1.6 billion in preferred dividends. It has asked for an additional $500 million in federal aid -- up from the $100 million it sought in the July-September quarter of 2010.

Fannie Mae also reported a $21.7 billion loss for all of 2010, narrowed from a loss of $74.4 billion the year before.

Freddie Mac's loss last year was $19.8 billion, compared with a $25.7 billion loss in 2009.

"The good news is that their losses are shrinking," said Anthony Sanders, a professor of real estate finance at George Mason University in Fairfax, Va.

The bad news? "This is just the calm before the storm. ... They're going to be hit with some staggering losses," Sanders said.

The continuing erosion of the housing market, and a coming wave of foreclosures that had been put on hold because of widespread problems with lenders' documents, could bring significant losses for Fannie and Freddie in the near future, Sanders suggested.

The government rescued the two mortgage giants in September 2008 to cover their losses on soured mortgage loans. It estimates the bailouts will cost taxpayers as much as $259 billion.

Washington-based Fannie Mae and McLean, Va.-based Freddie Mac own or guarantee about half of all mortgages in the U.S., or nearly 31 million home loans worth more than $5 trillion. Along with other federal agencies, they played some part in almost 90 percent of new mortgages over the past year.

Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and sell them to investors around the world.

The government's estimated cost of bailing out the mortgage giants far exceeds the $133.7 billion Fannie and Freddie have received from taxpayers so far. That would make theirs the costliest bailout of the financial crisis.

The two have been hit by massive losses on risky mortgages purchased from 2005 through 2008. The companies have tightened their lending standards after those loans started to go bad. Default rates on new loans are far lower.

The Obama administration unveiled a plan earlier this month to slowly dissolve the two mortgage giants. The aim is to shrink the government's role in the mortgage system. The proposal would remake decades of federal policy aimed at getting Americans to buy homes and probably would make home loans more expensive.

Exactly how far the government's role in mortgages would be reduced was left to Congress to decide. But all three options the administration presented would create a housing finance system that relies far more on private money.

Treasury Secretary Timothy Geithner will face questions from lawmakers next week at a congressional hearing on the proposal.


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