Fannie May Needs More Money From Treasury

Fannie Mae told the U.S. Treasury on Friday that it will need another $19 billion to offset a loss of $23.17 billion in the first quarter, as the company continues to be battered by mortgage defaults, The Wall Street Journal reports.

This demand for capital will bring the amount provided Fannie to about $34 billion; the Treasury has agreed to provide as much as $200 billion to Fannie and to Freddie Mac. Freddie, which will report its results in a few days, has already received $45 billion.

Both companies, which were taken over by the government, buy home loans from banks and turn them into securities for sale to other investors. They are suffering losses because they focus on the weakest segments of the housing market.

Alt-A loans, many of which allowed borrowers to avoid documenting their income, accounted for 39 percent of Fannie’s credit losses in the latest quarter.

Source: The Wall Street Journal, James R. Hagerty (05/09/2009)