It's a sign of the dismal state of the housing market that a combined
Three years after the government put the two agencies on life support, Fannie and Freddie are still reporting billions of dollars of losses every quarter — and regularly asking the
They may continue for some time. The GSEs still hold massive piles of real estate-owned properties on their books at par, which are expected to force Fannie and Freddie into reporting losses for quarters to come.
But the question remains whether Fannie will be able to generate enough fee income from newer, current loans to cover its losses on the backlog of older, non-performing mortgages.
"There are continuing streams of progress inside the numbers," says Vogel, citing a decreasing number of underwater loans from 2006 and 2007. Much of the backlog on the GSEs' books comes from those delinquent mortgages worth more than the underlying house.
"You want to get to the point where there's a comfort margin from existing loans, and the new assets coming on are paying for the old," he says.
Fannie on Tuesday afternoon reported a third-quarter loss of
Its request for
Fannie has now requested
Fannie warned on Tuesday that future defaults and charge-offs will continue "over a period of years." Its foreclosures are proceeding at a slow pace and "ultimately the company is dependent on servicers' willingness, efficiency and ability to implement its home retention solutions and foreclosure alternatives," the agency said in a press release.
Analysts are quick to point out that the GSEs do not follow generally accepted account principles. They argue that
"These are effectively book-keeping numbers," says Vogel.
If housing prices fall another 10% next year, as the GSEs and banks unload foreclosed properties, that decrease will have a huge impact on the value of mortgages currently in the held-for-investment portfolios of the major banks.
Conversely, slowing down the foreclosure process has actually aided the GSEs, banks and mortgage insurers from having to book massive losses all at one time, Whalen says.
"What is their REO position and what are the expected losses going to be?" Whalen asks. "When they start realizing the losses, this will become a firestorm in
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