Tuesday, May 6, 2008

Fannie Mae Records $2.2 Billion Quarterly Loss; Fear Mounts

Mortgage giant Fannie Mae today reported first a first quarter loss of nearly $2.2 billion, or $2.57 a share, much higher than the expected loss of $0.81 analysts were expecting, according to The New York Times.

Those who are regular readers of this blog know that one of my biggest fears is that one of these mortgage giants will fail. The impact of a Fannie Mae or Freddie Mac failure would be felt hard and fast, and would likely send the already precarious economy into a colossal tail spin. Not only would the housing market tank, but so would the entire U.S. economy. I am not excited about those prospects and the new-found power given to these companies by the government is not increasing my confidence level at all.

I understand why the government loosened the guidelines for the companies, yet at the same time it scares me. While the possibility remains that these changes will help the credit markets, and in turn the housing market and economy, they also increase the chances of these companies failing and the potential impact of a failure. According to The New York Times, Fannie Mae and Freddie Mac now control more than 80 percent of the mortgage market--more than double their market share of just a couple years ago. If these companies fail, the mortgage market is for all intents and purposes dead--a scary possibility. Of course, the government won’t let these companies fail, but how much would a bail out cost taxpayers? Some estimates put the number over a $1 trillion, a number that would have serious consequences to a nation already over $9 trillion in debt.

I have my fingers crossed that we won’t have to witness the failure of either of these mortgage industry giants, but as the losses continue to mount, I get more and more fearful. America has a lot riding on these two companies, so let's hope that they are able to keep it together.

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