Lisa Simpson
May 19,2010
In: Finance

Freddie Mac in Trouble in the First Quarter Seeks more Aid

Freddie Mac in trouble in the first quarter seeks more aid.

Freddie Mac after being in trouble during the first quarter facing losses is seeking more aid to the tune of $10.6 billion. This is another indication that the taxpayer has to bear more of the burden since the housing market is far from stable.

Freddie Mac is basically owned by the Federal Government. In 2008 September it was on the verge of total collapse. The fresh request for help will hike up the rescue package received by it to $61.3 billion.

However Charles Haldeman the CEO of Freddie Mac said that there were signs of the housing market stabilizing. In “key geographic areas” the prices and sales of residential houses have picked up. Haldeman nevertheless warned that the housing market continues to be fragile with record numbers of delinquency and foreclosures coupled with staggering unemployment.

Freddie Mac had earmarked $5.4 billion to recoup credit losses emanating from soured mortgages. It is a decrease from $7 billion during the first quarter of 2009.

The Congress had set up Freddie Mac and Fannie Mae to purchase from lenders mortgages, make packets of these into bonds and then resell them to investors across the world. When the housing balloon burst they failed to raise sufficient funds to keep afloat and the government took steps that in effect led to these two becoming nationalized.

Since then mortgage business of Freddie Mac, Fannie Mae, Federal Housing Administration and Veterans Administration kept increasing. It supported 97% of residential loans during the first three months of this year as per the findings of Inside Mortgage Finance.

Late in 2009 Washington had promised to provide coverage to unlimited losses right up to the end of 2012. The new request coming from Freddie Mac will increase the help given to both the firms to $136.5 billion – the losers being the taxpayers.

It is expected that Fannie Mae will soon release its figures and also put in a request for extra financial assistance.

The real estate market continues to wobble making the Federal Government reluctant to chalk out any plan to bring about reform in both these entities.

The Republicans are pressing for sweeping overhauling of the financial system is of no value without including plans for these two entities – Freddie Mac and Fannie Mae. The Republicans suggest that these two should be made into private firms without any support from the government; alternatively they should totally down shutters.