March 2016 H OUSING N EWS R EPORT
FINANCIAL BRIEFS
Is Fannie, Freddie Under Capitalized? After eight years under federal government conservatorship, the federal regulator of Fannie Mae and Freddie Mac, warned in mid- February that the agencies lack of capital reserves could trigger another bailout. Freddie Mac’s chief regulator said the companies cannot operate under the current circumstances forever. Even as they send billions to the U.S. Treasury, their own capital reserves are shrinking, said Melvin L. Watt, director of the Federal Housing Finance Agency. “Some of the challenges and risks we are managing are escalating and will continue to do so the longer the enterprises remain in conservatorship,”Watt said in a prepared statement. Watt said the government sponsored enterprises will have no capital buffer by Jan. 1, 2018, “and no ability to weather quarterly losses—such as the non-credit related loss incurred by Freddie Mac in the third quarter of last year — without Mel L. Watt In a speech before the Bipartisan Policy Center earlier On Feb. 18, Fannie Mae and
making a draw against the remaining Treasury commitments.”
In 2008, the government seized control of both companies as the housing market unraveled and the firms’ losses piled up. Taxpayers pumped $187 billion into the companies, but over the last few years Fannie Mae and Freddie Mac, which buy mortgages from lenders, and then package them into securities to sell to investors, have been sending profits back into government coffers. “I can assure you that these challenges are certainly not going away, and some of them are almost certain to escalate the longer the enterprises remain in conservatorship,” warned Watt.
SOURCE: Federal Housing Finance Agency
REO Inventory and Case-Shiller Home Price Index - 2007 - 2016
1,200,000
200
RealtyTrac REO Inventory
S&P/Case-Shiller Composite - 10
S&P/Case-Shiller Composite-20
190
1,000,000
180
170
800,000
160
600,000
150
140
400,000
130
120
200,000
110
-
100
SOURCES: RealtyTrac, S&P Case Shiller Home Price Index
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