The Fannie Mae Situation – FNM, is it a good time to buy

An article by pgupta    2 Comments

One of the biggest news stories of the past few years was the near collapse of Fannie Mae, and the rescuing of the company by the government. Well, Fannie Mae is still in the news and February was not a good month for this iconic company in the United States. With all the good news about the economy recently, the Fannie Mae (NYSE: FNM) situation is making many worry about just how strong the economy truly is.

The largest provider of funding for U.S. home mortgages, Fannie Mae (NYSE: FNM), saw a big decrease in its investment portfolio in the month of February. In addition, the company took a second big hit with the announcement that the company had more delinquencies on its loans, which were happening at a much faster rate.

The Fannie Mae portfolio saw a decrease of 14.2 percent to $725.9 billion in February. This was a decrease of almost $10 billion from the January portfolio value of $735.2 billion. In addition, the year-to-date portfolio has decreased by 31.2 percent. The value of the portfolio in February 2009 was $784.7 billion, which is nearly $60 billion above what it is now.

Delinquencies for Fannie Mae have continued to increase as well in February, with single-family mortgages going delinquent at a rate of 5.52 percent. This is double what the delinquency rate was in 2009, when it stood at only 2.27 percent. Multi-family delinquencies also rose to .69 percent, which is almost three times what it was in 2009, when it stood at .27 percent.

In February, Fannie Mae’s mortgage portfolio increased by one percent, pushing the value to $3.230 trillion, with the year-to-date portfolio actually going down by two percent.

For the government, this has been bad news because the U.S. government is relying heavily on Fannie Mae and its sister company Freddie Mac to help stimulate the housing market of the United States by buying up mortgage loans, making financing easier and helping consumers keep from going into foreclosure.

In the fourth quarter of 2009, Fannie Mae lost $16.3 billion and the company is going to be requesting a $15.3 billion loan from the U.S. Treasury to keep the company from going into the red. This then means that more taxpayer money is needed to keep the company running, and not failing, as nearly happened a few years ago.

The housing market still has some distance to go in the United States if the state of Fannie Mae is any indication. The company had a very bad few months with delinquencies accelerating, portfolios shrinking and losses increasing. The U.S. government does not like to hear this and neither do investors, who have been hoping that a better housing market would help to bring up the entire economy as has already been happening for a year in Canada. Will Fannie Mae go under again? Well, it depends if taxpayers want to help out with another $15 billion.

Further Reading

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