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Mortgage giant seeks billions

Fannie Mae asks for additional $4.6B in aid due to declining home values, according to officials

Posted: March 7, 2012 2:00 a.m.
Updated: March 7, 2012 2:00 a.m.

Mortgage giant Fannie Mae asked the federal government nearly in $4.6 billion last week in aid. Official estimates put the total cost of the bailout at nearly $259 billion through 2014, according to the Associated Press.

Mortgage giant Fannie Mae asked the federal government for nearly in $4.6 billion last week in aid, after taxpayers spent more approximately $150 billion on a 2008 bailout, and local Santa Clarita industry experts are weighing in on the subject.

Fannie Mae lost some $2.4 billion in the fourth quarter of 2011 as a result of declining home prices, according to Fannie Mae officials.

In September 2008, both Fannie Mae and Freddie Mac were rescued by the federal government and placed under the control of the Federal Housing Finance Agency after receiving the federal aid.

Government estimates the cost of financial assistance for the two companies through 2014 could cost $259 billion, according to the Associated Press. Fannie Mae has received the lion’s share of the aid so far, nearly $116 billion. The largest portion of that money was allocated in 2009, as the housing market collapsed.

Local Realtor Sam Heller of Keller Williams VIP Properties believes the federal government must bail out Fannie Mae, but only because it has failed to push the banks to negotiate or give homeowners more time, resulting in foreclosures.

According to RealtyTrac, 1-in-256 homes in California during January 2012 received a foreclosure filing representing 253,878 homes.

Founded in 1938, Fannie Mae was designed to raise the levels of home ownership and improve the options for affordable housing.

Both Fannie Mae and Freddy Mac guarantee many of the loans made to home buyers and as home prices dropped and homeowners defaulted, the two organizations have been forced to pay for the losses, which, in many cases, were created by poor lending prices and subprime loans during the real-estate boom years.

The losses increased in the past two quarters because some homeowners are now paying less interest after refinancing and others are defaulting on their mortgages, according to Fannie Mae officials. Fannie Mae, a publically traded company, was only trading at 30 cents per share as the market opened Monday.

“We need Fannie Mae, we just need to change the way the banks that were bailed out do business,” Heller said.

The lenders, and, in particular, Fannie Mae and Freddie Mac, have been opposed to writing down the principles on underwater mortgages for homeowners, according to Richard Szerman of Silver Creek Realty. For that reason, he opposes any additional tax dollars used for bailouts when the financial institutions have been unwilling to bail out the consumers.

“The absolute silver bullet solution to the problems with the housing market is principle reductions for underwater homeowners. It saves homes and grows consumer confidence in the markets,” Silverman said.

Giving Fannie Mae more money is just another example of the extreme disconnect between banks, the government-sponsored Fannie Mae and the consumers they are supposed to be serving, he said.

One year ago, the White House unveiled a plan to shrink the government’s role in the mortgage system. In February 2012, the FHFA submitted a plan to Congress that would put more of the credit risks on the lenders. That plan might also make home loans more expensive and reverse decades of public policy aimed at increasing homeownership.

The FHFA just announced another increase in their mortgage insurance, said Jeffrey Milat, mortgage loan consultant with Augusta Financial. Effective April 1, the rate is going from 1 to 1.75 percent, and the rate for yearly premiums is going from 1.15 to 1.25 percent, he said.

“I think the bigger story is the higher interest rates are being charged to all borrowers who get Fannie and Freddie loans,” Milat said. “All of this to pay for a 2 percent reduction in the payroll tax that funds Social Security.”


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