This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Fannie-Freddie Bailout: $148B and Counting

Stocks in this article: FNMA.OBB FMCC.OBB C BAC JPM WFC USB AIG

WASHINGTON ( TheStreet) -- Second-quarter results from Fannie Mae (FNM) and Freddie Mac (FRE) paint a dark picture for the firms' near-term profitability and for an eventual payback of taxpayer funds.

On Monday, Freddie Mac reported a net loss of $6 billion, or $1.85 per share. It continued to build loan-loss reserves even as big banks like Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and U.S. Bancorp (USB) saw benefits from reducing the amount of cash held against bad debt. Credit losses climbed and its delinquency rate rose, mainly because of problem loans originated during the subprime bubble of 2005 to 2008.

Freddie Mac's conservator will request an additional $1.8 billion from the Treasury Department to keep its balance sheet in the black.

Freddie's results follow a similarly dour report from Fannie Mae last week. Fannie reported a net loss of $3.1 billion, or 55 cents per share, and will need another $1.5 billion from the Treasury. Its credit metrics were slightly better than its mortgage-finance twin, but warned that financial results will be "negatively affected" by bad loans acquired during the subprime bubble and that related expenses "will remain high in 2010."

The Fannie-Freddie bailout is soon to top $148 billion and, unlike American International Group's (AIG), it stands little chance of being repaid. While AIG topped the bailout list with a one-time height of $182 billion, the firm has shaved the total down to under $70 billion, with a big chunk set to be repaid by year-end.

Looking at the delinquency trends of Fannie and Freddie's loan books, it's clear the mortgage-finance giants aren't near the end of the loan-loss tunnel. That's especially true if the economy - and housing market - remain on shaky ground.

U.S. Mortgage Crisis

Mortgage Mayhem
A Special Series by TheStreet >>

The default rate on loans originated in 2006 is nearing 5% for Fannie Mae, while the portion of Freddie Mac's 2006 loans that succumbed to foreclosure or short-sale is approaching 4%. That might sound meager, except when considering that the same statistics for pre-2005 vintage loans range from 0.5% to just above 1%.

Within all the negativity sprinkled throughout the two reports, there was a faint silver lining: Loans originated over the past year and a half are doing remarkably well. Default rates are barely existent and delinquency rates are a sliver of a percent.

Just 0.4% of Freddie Mac's 2009-vintage loans are going bad and none of its 2010-vintage loans are suffering. That's largely because of stricter underwriting standards being enacted by the banks and enforced by Fannie and Freddie.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs