Thursday, May 6, 2010

Freddie Mac seeks additional $10.6 billion in aid

WASHINGTON — Freddie Mac is asking for $10.6 billion in additional federal aid after posting a big loss in the first three months of the year. It's another sign that the taxpayer bill for stabilizing the housing market will keep mounting.
The McLean, Va.-based mortgage finance company has been effectively owned by the government after nearly collapsing in September 2008. The new request will bring the total tab for rescuing Freddie Mac to $61.3 billion.

But company CEO Charles Haldeman said, "We are seeing some signs of stabilization in the housing market, including house prices and sales in some key geographic areas."

Freddie Mac set aside $5.4 billion to cover credit losses from bad mortgages, down from $7 billion in the final three months of last year.

Haldeman cautioned, however, that the housing market "remains fragile with historically high delinquency and foreclosure levels" and high unemployment.

Companies taken over

Created by Congress, Freddie Mac and sibling company Fannie Mae buy mortgages from lenders and package them into bonds that are resold to global investors. As the housing bubble burst, they were unable to raise enough money to stay afloat, and the government effectively nationalized them.

Since then, Uncle Sam's share of the mortgage business has kept getting bigger. Government institutions — mainly Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration — backed nearly 97 percent of home loans in the first quarter of 2010 .

With the housing market still on shaky ground, Obama administration officials argue it is still too early to draft any proposals to reform the two companies or the broader housing finance system. But Republicans argue that the sweeping financial overhaul before Congress is incomplete without a plan for Fannie and Freddie. Senate Republicans propose transforming Fannie and Freddie into private companies with no government subsidies, or to shut them down completely.

"The events of the past two years have made it clear that never again can we allow the taxpayer to be responsible for poorly managed financial entities who gambled away billions of dollars," said Sen. John McCain, R-Ariz. "The time has come to end Fannie Mae and Freddie Mac's taxpayer-backed slush fund and require them to operate on a level playing field."

But Barry Zigas, director of housing policy at the Consumer Federation of America and a former Fannie Mae official, said the Obama administration is right to take its time.

"They are providing most of the mortgage credit that's making it possible for Americans to buy homes and refinance their mortgages," Zigas said. "They're vital to the housing recovery that everyone is hoping is getting started."

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