Why Fannie and Freddie aren't reporting losses

Rules give the mortgage companies two years to account for bad loans, which a federal watchdog says is way too long.

By Jason Notte Aug 19, 2013 3:06PM
Miniature home on sheet of percent signs © Comstock/Getty ImagesHousing prices are rising fast, and foreclosure rates are headed back to normal. Surely, real estate can massage the economy where retail keeps bludgeoning it.

Maybe. U.S. housing isn't not so far removed yet from the peak of its crisis that tough markets in some states and the impact of debt on potential homeowners can just be blithely ignored. Nor can housing be considered a stable pillar of the economy when mortgage finance companies are walling off their losses.

A report written by the inspector general for the Federal Housing Finance Agency (FHFA) and reviewed by Reuters suggests that Fannie Mae and Freddie Mac are hiding billions of dollars losses with help from rules that give them up to two years to report bad loans. The FHFA, which regulates Fannie Mae and Freddie Mac, says those new standards should go into effect within the next two years, and it expects the companies' resulting losses "to be reasonable."

This should be of no small concern to U.S. taxpayers. The federal government seized Fannie Mae and Freddie Mac in 2008 primarily because mortgage losses were pushing them toward insolvency. The majority of those losses stemmed from mortgages that defaulted during the housing crisis.

Although Fannie and Freddie have since reduced the funds they reserve to cover potential losses on bad loans as both home sales and prices have risen, taxpayers have spent more than $188 billion keeping the companies alive.

This latest disclosure comes just as they're both reporting huge profits and sending billions in payments back to the government. On Aug. 8, Fannie Mae reported a $10.1 billion second-quarter profit and sent $10.2 billion to the U.S. Treasury to help pay back its federal aid. That was its sixth straight profitable quarter and is nearly double the $5.1 billion profit it posted in the same quarter a year earlier.

Freddie Mac posted its second-largest quarterly profit ever in the second quarter. Its income of $5 billion is funding a $4.4 billion reimbursement to Treasury.

The housing crisis and ensuing financial meltdown gave U.S. homeowners and taxpayers plenty of reason to question small, unexpected bursts of prosperity. With the already maligned Fannie and Freddie just kicking their losses out to a more convenient earnings report, the mortgage companies are doing little to shelter themselves from that cynicism.

More on moneyNOW

Aug 19, 2013 3:32PM
Because they have been told not to.
Aug 19, 2013 3:23PM
This article leaves out what happened to underwriting standards of Mortgages.  Some can argue they are to strict now.  Dodd-Frank cut down on delinquencies and defaults BIG time.  Also says nothing about QE3 and how much in Mortgage backed Securities are bought up by the Fed and sold off by everybody else.

So most of the bad apples have left the bunch and the treasury buys up a portion of the new bunch automatically for Fannie/Freddie.  MBS's are still over sold however because of the taper and talks of the rising interest rate.  They basically are collecting your mortgage payments minus the servicer fee.  No wonder they are cash cows.   Amazing what happens when some rules are made and followed.

Aug 19, 2013 7:30PM
Pretty much confirms we are on the edge ready to crash badly. There is a screening test to qualify at the executive level for a GSE. I took and passed that test... 1 of less than 50. NO interview. In fact, those who got interviews had no actual lender experience. It should tell you who is managing them. The prevailing mortgage rates have been below the threshold to adequately service them. There are numerous homeowners seemingly "released" from obligation by Short Sale, who haven't read any of the documentation. You remain obligated indefinitely. Expect values to sink as the "tapering" kicks in and delinquencies to rise as terminations and layoffs commence to keep executive pay coming in. It isn't going to end well... America's BEST aren't employed in their career roles, cardboard cut-outs of responsible competent people took our places.
Aug 19, 2013 3:45PM

Is FHA going to have to ask Congress for more funding in Sept?


Aug 19, 2013 3:43PM
MSN do you happen to know how PMI works. If a person does not put 20% down then they pay PMI insurance for the lenders benefit, but when the home goes into foreclosure who does that PMI insurance get paid to and how much? Surely not the full principle. I can't find anyone that seems to know the answer.
Aug 20, 2013 11:25AM
I couldn't get a loan at the lower rate because I didn't owe enough. They asked me if I wanted to borrow more, and I said no, I want to pay it off before I retire. What a bunch of crap. Isn't that descrimination? I can't have a low interest rate because I don't owe enough. You get penalized for working hard to pay off your debts. Unbelievable.
Aug 20, 2013 10:25AM
This article implied a ton but stated very little. Since the Big Banks have far more Toxic Assets than Fannie and Freddie, then if what this guy states is true, then we have far more to worry about concerning what's on Big Banks balance sheets. Fannie and Freddie at the current Rate, will have paid off the entire amount it borrowed from the Taxpayers within 12 months. After that I would expect all returns to be available for any potential future losses. That appears to be a lot sooner than 2 years. This so-called watchdog is suspect at this point based on current data.
Aug 19, 2013 7:56PM
PennyMac will help people out with distressed mortgages, ticker PMI. Guess who the executives are...ha
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

Trending NOW

What’s this?


[BRIEFING.COM] The stock market began the new trading week on the defensive note with small-cap stocks pacing the retreat. The Russell 2000 (-1.4%) and Nasdaq Composite (-1.1%) displayed relative weakness, while the S&P 500 lost 0.8% with all ten sectors ending in the red.

Global equities began showing some cracks overnight after China's Finance Minister Lou Jiwei poured cold water on hopes for new stimulus measures. Specifically, Mr. Lou said the government has no plans to change ... More