GSEs recounted loss, sub prime market in further mess
RateEmpire.com
Freddie Mac and Fannie Mae, the two Government Sponsored Enterprises, reported losses from bad loans they have incurred over the last financial year. Late last week there was a vast uproar in the sub prime market with sell-off rumors that gave rise to the notion of their troubles being bigger than they acknowledged.
A part of the financial world was hoping against hope that Freddie Mac and Fannie Mae might turn out to be a portion of the solution that they are seeking for a long time on the sub prime mess. The reality nevertheless seems bleak. The GSEs are getting into troubles of their own.
The rumor was started from the way the GSE estimates its credit loss ratio. The bad loan losses are seen off as a fraction of the GSE’s total loan holding. It was reported Fannie was hiding its losses by showing lower credit ratio from its new calculations.
Freddie Mac, the smaller GSE, on Tuesday 20 November, proclaimed of its losses. Its 3rd quarter deficit was at least a double more than what it expected; which could result in reduction of its annual $ 2.00 dividend to half. Mere two weeks earlier, the other GSE Fannie Mae, publicized a $1.4 billion loss for the 3rd quarter.
The estimated loss might be around $ 2.03 billion according to the company. It is hoping to sell mortgages and gain around $ 5 billion in Capital by selling its preferred stock. Per diluted common share yielded to $ 3.29 loss. During the same financial period in the year 2006, company’s net reported loss was $1.17 per share; which totaled to a net loss of $7.15. All this fuss resulted in a decline in the net assets’ fair value that was attributable to common stockholders. For the 3rd quarter, the amount calculated is roughly $ 8.1 billion. In 2006, it was $ 300 million lower.
The year 2007 has proved to be a difficult one for many financial and banking institutions. And the poor state of housing and mortgage market has not spared these GSEs either. The subprime mortgage crisis has taken its toll again. Nevertheless as per senior officials continued efforts are being made to overcome the losses as these firms continue to play an important role in stabilizing the overall sorry state of mortgage and real estate markets. But troubled homeowners feel they have nowhere to look to.
Director of the Office of Federal Housing Enterprise Oversight which controls the two concerned GSEs, James Lockhart, reviewed the situation and told to CNBC news channel that it would be a much better proposition for the GSEs to maintain the billions of dollars of capital, kept to consolidate the loss conditions. It means the administration itself is blocking the GSEs’ chance to acquire extra loans for its own portfolios.
Again, the whole scenario pushed the Countrywide Financial Corporation to issue a statement refuting its chances of approaching bankruptcy and declaring of ample liquidity.
Copyright 2007 RateEmpire.com
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