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More bad news for the U.S. housing market, Fannie Mae one of the two main U.S. mortgage providers have announced losses of $US2.3 billion in the second quarter, and it’s looking likely that there will be moreheavy losses, when struggling homeowners fail to keep up with repayments on the mortgage loans.
Freddie Mac the other main provider will also now have to limit their buying and guarantee’s of home loans, which of course may course a rise in interest rates for the consumers, already over the last week rates have increased on average to 6.64 percent on a 30-year fixed-rate mortgage according to publisher HSH Associates.
Freddie Mae announced its $US821 million second quarter loss two days before Fannie Mae. There has been a staggering $US14 billion loss between the Fannie Mae and Freddie Mac during the past four quarters.
To help raise more capital Fannie chopped its quarterly dividend to per common share from US35, but it’s likely they will still need to raise more capital. Now that the Treasury has the opportunity to make loans to Fannie Mae and Freddie Mac and buy shares in them, some experts think the treasury will have to shore the pair up in a way of acquiring large equity stakes in the two main U.S. mortgage loan providers.
The fall in U.S. house prices have caused much of the losses for the pair. The U.S. as a whole has seen house prices fall another 11 percent over the last year.
Freddie Mac and Fannie Mae acquire homes from lenders and package then into securities, they sell some of the securities to investors and keep some for themselves, they guarantee payments on the securities and they earn fees for doing so. But when homeowners run in to trouble and default on their mortgages, Freddie Mac and Fannie Mae have to compensate the holders of the mortgage securities, so in times like now when the economy is bad the pair take the brunt of it.
Whopping $US5 trillion U.S. home mortgages are owned or guaranteed by Freddie and Fannie.
Experts seem to think that the Treasury will buy preferred stocks in the pair within the next few weeks.
Source: theaustralian
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