Fannie Mae and Freddie Mac are back in trouble, it seems. According to a recent article from The Wall Street Journal Asia, the struggling entities have warned the U.S. government that they could end up needing even more support if the national mortgage-insurance industry continues to worsen at the pace it has been for the past months. Both companies are already operating pretty much in the red, even after some one hundred twelve billion dollars of Treasury infusions following the Fed appropriating their conservatorship last year. The only thing that has kept Fannie and Freddie from needing even more fallback capital is the two entities’ claims collections from mortgage insurers.
With the industry in serious trouble, however, there are indications that Fannie and Freddie may not collect nearly as much from these claims as that to which they are entitled, creating further shortfalls. At this point, they have warned, they will need even more financial support from the Fed to hold off disaster. Fannie Mae has earmarked one billion dollars as loss reserves in the event of the seemingly very likely shortage, but Freddie has claimed to be unable to take the same preventative step.
In a SEC filing, Freddie officially warned that “several” of the mortgage insurance firms to which it owes money are considered “at risk of falling out of compliance with regulatory capital requirements.” If that should come to pass, the warning forecast, the entity would not only lose money, but the mortgage insurance industry could become seriously imperiled by Fannie and Freddie’s inability “to receive future claims payments.”
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