FHFA's Lockhart: Fannie, Freddie Unlikely To Fully Repay Government
July 30 2009 - 11:52AM
Dow Jones News
Fannie Mae (FNM) and Freddie Mac (FRE) are unlikely to repay the
government in full for all the capital pumped into the companies,
their regulator said Thursday.
"My view is that some assets in the senior preferred will have
to be left behind as they come out of conservatorship," Federal
Housing Finance Agency Director James B. Lockhart said at a panel
discussion in Washington. "That will mean that some of the losses
will never be repaid."
The Treasury has agreed to pump $400 billion combined into the
companies in order to keep them solvent. In exchange, it receives
senior preferred stock. So far it has injected $85 billion, but
Lockhart said that figure was likely to increase in the coming
months.
Fannie and Freddie together own or guarantee $5.4 trillion in
mortgages. When the housing market soured in 2007, defaults ate
through their thin cushion of capital, prompting fears they would
collapse. The government seized them in September.
Lockhart said the companies could return to strong profits in
two to three years. But he cautioned that their thin capital and
huge exposure to the mortgage market make it unlikely they will be
able to repay the government in full.
"The book is so large that it is hard to see that they could
actually repay all that," he said.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com