Fannie Mae's Delinquent Loans Soar

By Steve Cook, Real Estate Economy Watch  |  Sept. 29, 2009 at 10:41 AM
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Nearly one out of twenty mortgages guaranteed by Fannie Mae was seriously delinquent in July, according to the latest data released today from the Congressionally-chartered company.

Fannie Mae's delinquency rate on single family mortgages jumped 0.23 percentage points to 4.17 percent in July, higher than it has been in the 11 years for which records are available. A year ago, the delinquency rate was 1.45 percent.

Fannie's multifamily delinquency rate in July also rose, up 0.05 percentage point to 0.56 percent in July. A year earlier it was 0.13 percent.

Last week Freddie Mac announced that its mortgage delinquency rate for its single family mortgages rose for the 28th straight month in August, reaching a record 3.13 percent of its portfolio 1.11 percent in August 2008. Fannie Mae has not yet released August delinquency figures.

The two companies together own or guarantee slightly over half the nation's mortgages, worth more than $5 trillion. Sharply increasing delinquency rates may signal a significant increase in foreclosures in the next six to nine months. The rising number of foreclosures and homeowners missing payments on loans held by the mortgage giants also puts pressure on their financial reserves and overall financial condition.

A year ago the Treasury Department took control of Freddie Mac and Fannie Mae, following the passage of legislation to give the agency greater authority over the financial viability of the two congressionally chartered companies and reports that shrinking capital reserves were declining.

Treasury has capped the retained portfolio at Fannie Mae and Freddie Mac at $900 billion until December 31, when they are to start declining by 10 percent per year until they reach $250 billion.

In August, Freddie Mac posted its first quarterly profit in two years as gains from hedges and a one-time accounting change offset credit losses. Freddie Mac said it would not need a capital injection from the Treasury to maintain its business of providing credit for United States housing. But it said it continued to rely on government money to keep it afloat.

Both Fannie and Freddie have played central roles in the Administration's efforts to stem foreclosures, buying up mortgage backed securities to lower interest rates, refinancing loans held by borrowers who owe more than their houses are worth, and modifying loans that the companies hold.

Chartered by the government to reduce the cost of mortgages to homeowners, Fannie Mae and Freddie Mac package mortgages into securities for sale to investors... The companies also invest in mortgages and securities backed by mortgages. Currently, Congress is considering legislation that could significantly change the structure and role of the two companies.

From Real Estate Economy Watch

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