Fannie Mae Seeks $1.5 Billion From U.S. Treasury After 12th Straight Loss

Fannie Mae, the mortgage-finance company operating under federal conservatorship, is seeking $1.5 billion in aid from the U.S. Treasury Department after a 12th straight quarterly loss.

A decline in costs from bad loans helped narrow the second- quarter loss to $1.2 billion from $14.8 billion in the same period a year earlier, the Washington-based company said today in a filing to the Securities and Exchange Commission. Fannie Mae has accrued more than $148 billion in consecutive losses since 2007, according to data compiled by Bloomberg.

The Treasury seized Fannie Mae and McLean, Virginia-based Freddie Mac, the biggest sources of U.S. mortgage funding, in 2008 as souring subprime loans pushed the companies to brink of collapse. Including today’s request, Fannie Mae has drawn $86.1 billion in aid. The growing tally has helped spur the Obama administration to solicit proposals to fix the companies, and prompted some lawmakers to demand their closure.

“Congress must act to end this taxpayer-funded bailout,” said Representative Jeb Hensarling, in a statement after today’s earnings were announced. The Texas Republican is the lead sponsor of legislation to abolish the companies.

Freddie Mac hasn’t yet disclosed second-quarter results.

Fannie Mae’s credit-related expenses, including home-loan delinquencies and defaults, fell to $4.9 billion from $18.8 billion a year earlier. Foreclosure sales, efforts to rework distressed loans, and a change in accounting helped reduce the costs, the company said.

Reducing Future Losses

Participation in the Treasury’s Making Home Affordable Program, which helps distressed borrowers lower monthly payments by rewriting loan terms, cost Fannie Mae $2.2 billion in the second quarter. Minimizing delays in repayment plans, forbearance programs and loan modifications can help reduce long-term losses by preventing defaults, the company said.

“These actions have been undertaken with the goal of reducing our future credit losses below what they otherwise would have been,” it said. “It is difficult to predict how effective these actions ultimately will be in reducing our credit losses.”

Though home prices improved in the second quarter, they may “decline slightly” through 2011, the company said. Losses on single-family mortgages fell about 60 percent from the first quarter to $5.1 billion. Since last year, “almost all” such losses were on loans made from 2005 to 2008, as a smaller share of newer loans, issued with higher underwriting standards, face delinquencies, the company said.

Seeking Ideas

The company forced lenders to repurchase about $1.5 billion in defective loans in the quarter, compared with $964 million a year earlier.

“We expect the amount of our outstanding repurchase and reimbursement requests to remain high” this year, it said.

Fannie Mae and Freddie Mac own or guarantee more than half the $11 trillion U.S. residential debt market. The Treasury and Department of Housing and Urban Development asked in April for public comment on how to fix the mortgage-funding system.

On Aug. 17, President Barack Obama’s administration plans to host a conference of lawmakers, financial executives and housing advocates to hear ideas for improving the property- finance system. Treasury Secretary Timothy F. Geithner has said his agency aims to offer “a comprehensive reform proposal” for the companies by January.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.