Posts Tagged ‘international capital market’

Fannie Mae in Need of Federal Aid

May 14, 2011

Despite mortgage buyer Fannie Mae’s mission of “providing liquidity, stability and affordability to the U.S. housing and mortgage markets”, the company reported an $8.7 billion loss for the first quarter of 2011, due to declining home prices around the United States.  The company is asking for $8.5 billion in federal aid.  This is not the first time Fannie Mae has asked for federal aid; in the last quarter of 2010, they received a loan of $2.6 billion.  The bailouts will cost about $259 billion to taxpayers.

Declining home prices around the United States has forced Fannie Mae to ask for $8.5 billion from the federal government, on top of the $2.6 billion loan they received in the last quarter of 2010. Fannie Mae buys home loans from banks and other lenders, packaging them into bonds with a guarantee against default and selling them to investors around the world.  When property values drop, homeowners default on their mortgage.  Fannie Mae guarantees that if the investors are unable to afford the payments, they will pay off the losses for them.  The company expects to make money on home loans that it acquired since January 2010.  Fannie Mae, based in Washington State, owns about half of all mortgages in the U.S., or nearly 31 million home loans, worth more than $5 trillion.  The bottom line is that they owe a lot of money in a market that hasn’t been doing well for a long time.

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Taylor P.

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