After posting massive losses, yet again, Fannie and Freddie have warned that they will be needing another round of bailouts in the near future.
Fannie Mae and Freddie Mac, already reeling in red ink, are warning they could face additional losses from the weakening condition of mortgage-insurance companies.
Fannie and Freddie together have required capital injections from the Treasury of $112 billion since the government took them over through conservatorship last year. Their need for government support would have been greater without collecting on claims from mortgage-insurance companies. Fannie and Freddie have received payouts of $2.3 billion and $658 million, respectively, from mortgage insurers through September this year.
But as conditions for mortgage insurers deteriorate, Fannie and Freddie have warned that their claims against the insurers may not be paid in full.
So you see, contracts are only sacred when it comes to taxpayer money.
Private mortgage insurance is required on any home mortgage with less than a 20% downpayment. The insurance typically only covers a fraction of the losses in the event of a default.
Last month, Standard & Poor's Ratings Services downgraded Mortgage Guaranty Insurance Corp., a unit of MGIC Investment Corp., the largest mortgage insurer for both Fannie and Freddie, and placed seven other mortgage-insurance companies on watch for downgrade. S&P said its move reflects "our view that macroeconomic conditions may have become more difficult for the mortgage insurers."
It's sort of hard to buy into this housing recovery spin when the mortgage insurers are scaling back on business and being downgraded.
The story doesn't end here. It seems the so-called housing recovery is threatening the viability of the FHA as well.
Due to “significant losses” on mortgages closed before this year, the Federal Housing Administration’s (FHA) capital reserve ratio plummeted below the congressionally mandated 2% threshold, according to an actuarial study of FHA’s fiscal strength.
The capital reserve ratio, which measures the reserves held in excess of what is needed to cover projected default-related losses over the next 30 years, now stands at 0.53% of total insurance-in-force as of September, compared with 3% in fall of 2008. These funds, held in the FHA’s Capital Reserve Account, are in excess of the funds held in the Financing Account to cover the “base case ” projection of capital needed to cover default-related losses on existing loans over the next 30 years.
Most of the FHA's projections predict no need for a taxpayer bailout. Of course the FHA never forecast a drop in reserves below the congressionally mandated 2% threshold either, so you have to wonder how good those projections are.
[Update:] It seems the losses at the FHA are forcing them to reconsider the wisdom of personally trying to re-inflate the housing bubble.
(Dow Jones)- U.S. Department of Housing and Urban Development Secretary Shaun Donovan said his agency is "actively looking" at raising premiums and minimum downpayments for borrowers seeking a Federal Housing Administration-backed mortgage.