We recently had some "good" news about losses at mortgage giants Fannie Mae and Freddie Mac.
WASHINGTON (AP) -- Government-controlled mortgage buyers Fannie Mae and Freddie Mac narrowed their losses in the final three months of last year. But they are asking for more money from taxpayers as the real estate market braces for what could be a new wave of mortgage defaults.
Fannie Mae on Thursday 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.
All told, the government estimates that total mortgage agency losses will be $259 billion. In the two years 2009 and 2010, Fannie and Freddie lost $141.6 billion. What's going to happen next?
"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 said.
That could help explain why the companies asked for more federal aid even as their losses shrank. Sanders suggested that they could be seeking the help in anticipation of future travails, knowing "what's around the corner."
Well — that doesn't sound good! You will recall that the Obama administration has backstopped all Fannie and Freddie losses through the 4th quarter of 2012. Conveniently enough, those working for the O-Man will likely be leaving public service at the beginning of 2013.
The current administration recently put forward a set of proposals trial balloons for restructuring the housing market and phasing out Fannie and Freddie. Here's all you really need to know—
Administration officials said the process of transitioning to a post-Fannie and Freddie world would take at least five to seven years, in part because the housing market remains too fragile. Many analysts say the process, which includes dismantling, moving, or reassembling the firms' infrastructure, could take even longer.
The long-awaited proposal was thin on specifics about what would replace Fannie and Freddie, which the government took over in 2008, and which have racked up $134 billion $141.6 billion in taxpayer losses. Instead, it outlined three options that were designed to frame what promises to be a prolonged and heated political debate over how to structure the nation's $10.6 trillion mortgage market.
As with every other large problem facing the Empire, there is no resolution in sight for restructuring the housing market. This seems like a good time to trot out America's Wheel of Suffering.
As problems become more intractable over time, our resistance to making real changes to confront those problems, our social inertia, becomes more entrenched. Thus the problems get worse, and nothing is ever resolved. Around and around it goes, and where it stops nobody knows.
What did Talking Heads say? Same as it ever was...