Fannie's Williams Remains `Cautious' as Mortgage Loans Sour at Slower Pace
Fannie Mae Chief Executive Officer Michael Williams said that he remains “cautious” as his company’s mortgages sour at a slower pace and some data indicates the U.S. housing market may be near a bottom.
Government-supported Fannie Mae, the largest holder of U.S. mortgage risk, has “clearly seen some positive indicators come out in recent months” in the housing market, Williams, 52, said in an interview. “Also, signs of challenges too.”
Fewer home loans among the almost $3 trillion that Washington-based Fannie Mae either owns or guarantees are turning delinquent, another positive signal that shouldn’t be read as conclusive, said Williams, a 19-year company veteran who took over the top position after regulators seized the firm in 2008.
Fannie Mae, which along with competitor Freddie Mac is operating under a government conservatorship, said yesterday it will seek $8.4 billion in additional capital from taxpayers after reporting an 11th-straight quarterly loss.
“We’re still seeing delinquencies rise, but what we saw over the first quarter is that the rate at which delinquencies are rising has abated,” Williams said in the April 27 interview at Bloomberg News headquarters in New York. “We’re cautious but somewhat optimistic that we’re starting to see the beginnings of a turnaround.”
At the same time, the extent of defaults “at the end of the day” will depend largely on the health of the employment market, and the number of homeowners losing properties may undermine the housing recovery, he said.
Williams’ views haven’t changed since the interview, which occurred during the quiet period before the release of its earnings, when securities regulations prohibit company officials from commenting publicly, Brian Faith, a spokesman, said.
About 5.47 percent of Fannie Mae’s single-family home loans were at least 90 days late as of March 31, down from 5.59 percent in February and up from 3.15 percent a year earlier, according to company disclosures yesterday.
That figure -- which doesn’t include loans delinquent for only one or two months -- has been boosted by government efforts to avert foreclosures through debt modifications. That procedure has slowed property liquidations after borrowers quit making payments.
Reports by banks and on mortgage securities have also shown new delinquencies slowing. Dominic Frederico, bond insurer Assured Guaranty Ltd.’s chief executive officer, said during a conference call today, “I will pray and light a few candles at church next Sunday” in the hope that the trend continues.
Fannie Mae, which the government seized along with McLean, Virginia-based Freddie Mac in September 2008 in a bid to stabilize housing and financial markets, has reported $148.3 billion of losses over the last 11 quarters.
The company’s most-recent aid request would bring its total draw from the Treasury to $84.6 billion since April 2009. The government is promising the companies unlimited capital through 2012 and more afterward.
During the housing boom, when the company’s worst loans were taken on, Williams said, he was tasked with fixing Fannie Mae’s bookkeeping and fulfilling an agreement with its regulator struck after accounting errors disclosed in 2004.
A National Association of Realtors report last month that pending home sales jumped in February by the most since 2001 indicates a housing recovery remains on track, Williams said. On May 4, the trade group said that its index of such activity increased 5.3 percent in March.
“Still, there are many borrowers who are delinquent on their mortgages, there are still some markets that are being challenged,” Williams said. “So, we’re being very aggressive in terms of managing our credit book and we’re also taking steps to ensure we continue to provide liquidity to the market, to keep the market moving.”
Republican lawmakers, including New Jersey Representative Scott Garrett, have called for Fannie Mae and Freddie Mac to begin to be wound down, even as analysts such as Zelman & Associates’ Ivy Zelman and Amherst Securities Group LP’s Laurie Goodman say housing’s stabilization may be undermined by defaults among borrowers owing more than their homes’ worth.
“They are inflating the price of the market still and not allowing us to get to the appropriate valuation for housing,” Garrett said in an interview at Bloomberg headquarters yesterday. “So long as you have that taxpayer subsidy in there, which created the bubble, it’s basically perpetuating some of the problems right now.”
Home prices in 20 of the biggest U.S. metropolitan areas tumbled 33 percent from July 2006 through April 2009, according to an S&P/Case-Shiller index. Values, without considering seasonal adjustments, then rose for five months before falling for the next five, leaving them up 2.8 percent from lows.
“We’re starting to see some positives out there, but we still remain cautious for a number of reasons,” Williams said.