Fannie Mae: In Dire Need of Cash, Announces Plans to Lose More on Purpose

by Alex Stenback on November 11, 2008

Two bits of news related to Fannie Mae. 

First, they are still losing money, but fast, and may need more government largess to survive.  From bloomberg:

Fannie Mae may need more than the $100 billion in funding pledged by the U.S. Treasury to stay afloat after reporting a record $29 billion loss and confronting more difficulty in issuing and refinancing debt.

“This commitment may not be sufficient to keep us in solvent condition or from being placed into receivership,''

Second, at 2PM today they are announcing a new loan modification initiative, from the WSJ:

Fannie Mae, Freddie Mac and U.S. officials are expected to announce plans Tuesday to speed up the modification of hundreds of thousands of loans held by the housing finance giants…

The streamlined effort will target certain loans that are 90 days or more past due, these people said. The program will aim to bring the ratio of mortgage payments for these homeowners to 38% of their income by modifying interest rates and in some cases forgiving portions of principal debt, these people said.

File this under the economic theory of "Some money is better than no money." 

In other words, if they can convince a few of these delinquent borrowers to make payments at reduced interest rates and/or principal amounts, they might have a prayer of staying solvent and preventing the economic carnage that would ensue if they just foreclosed on everyone.

Of course, the cynical take on this is we are rewarding the risk takers (overextended homeowners) at the expense of those who did not overextend themselves.  Also a totally true statement.

Update 4:16PM: Video of Today's loan modification presser from CNBC.

{ 1 comment… read it below or add one }

Bob November 11, 2008 at 5:52 pm

The only way to qualify is to quit making your payments for 3 months? OK, sounds like it’s going to be a merry Christmas and a Happy New year afterall. On the bright side, that should send the downward spiral into overdrive and maybe this correction will happen faster.

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