By Carla Ghosn, founder and CEO of www.mycaal.com.
If anything can be said about the U.S. housing market and impacts on loan modification, at least there’s an undeniable element of consistency. And just to be clear, any perceived hint of sarcasm is entirely intentional. Fannie Mae, the biggest well of financing for American home loans announced that it needs an additional $7.8 billion dollars in federal aid (that is, in U.S. taxpayer money) in order to keep its head above water. This, in the midst of a sickly housing market that has broadened its 3rd quarter loss to over $5 billion.
The federally controlled organization blamed the loss on factors such as losses suffered on derivatives utilized to hedge its exposure to fluctuations in interest rates and costs associated with mortgages made before the financial nose-dive which occurred in 2008.
What this means, is that to date, Fannie has siphoned off over $112 billion in taxpayer funds since being taken over by the federal government in 2008. In that time, it has ‘graciously’ returned just over $17 billion in dividends to taxpayers. According to the head financial officer at Fannie Mae, Susan McFarland, the organization has loads of pre-2009 loans that it needs to slog through, which is a factor resulting in the credit losses which have been evident. McFarland stated further that the company is doing what it can to limit losses and shield the taxpayer from further risk. How thoughtful.
Fannie Mae, together with Freddie Mac, accounts for around 50% of all mortgages in the United States, and in light of the pivotal role that this company plays in the housing market, the government has committed to provide it with any resources it requires in order to ensure its solvency through to the end of 2012. The two institutions have together cost the American people just less than $170 billion dollars since the financial meltdown began. The strategy of placing them under federal oversight was supposed to be a temporary one, although it now appears that it will take quite a few years before a viable alternative is identified.
The Fannie regulator has stated that the bail-out could reach a level of just below $200 billion by 2014. All the while numbers like this get tossed about, almost to the point of losing their meaning entirely, the burden placed on the average homeowner in America continues to take a heavier and heavier toll. Of the last 17 quarters that have come and gone, Fannie has reported a loss in all but one.
In the meantime, Freddie Mac has also announced its need to borrow a further $6 billion from the government. It’s interesting how the word borrow is used, as if any real expectation of a repayment can actually be indulged. Given the fact that these two federal housing giants now back 90% of all new home loans, just how confident are the American people supposed to be regarding the outlook of the housing market over the next few years?
Millions of homeowners across the country continue to wait in vain for any concrete signs of a housing market recovery. Many of them are locked into a titanic struggle with their lender in an attempt to qualify for a loan modification that reduces the financial weight that is overloading them. The chances are great that you are one of those homeowners who is desperately trying to save your American dream. We’d love for you to share your story and experiences. You are welcome to do so on twitter, facebook, or mycaal.com.