After the closing bell on Friday, just in time for everyone to stop paying close attention, mortgage behemoth and ward of the state Fannie Mae ("Fan") released its fourth-quarter and full-year financial results. Its press release (PDF) informs us that its $74.4 billion loss in 2009 (inclusive of dividends paid to the government) followed a $58.8 billion loss in 2008.
For those keeping score at home, Fan's three-year losses of $137 billion, as reported by the Associated Press's Alan Zibel yesterday evening, plus the roughly $80 billion lost in the same period at kissing cousin Freddie Mac ("Fred"), is over three times the highest-end estimate of $66 billion in total losses at household word Enron, and over four times the roughly $50 billion investors lost to household name Bernie Madoff. Enron and Madoff are history; Fan and Fred are just warming up, and a large portion of the public has no idea who they are.
Oh, by the way, Fan also told us yesterday that it will need another $15.3 billion in cash by the end of March. That would bring the total of Uncle Sam's combined Fan-Fred cash infusions to $126 billion.
These outrageous results are made even more maddening by Zibel's kid-glove treatment of the problems at the two entities in paragraphs 8 through 10 of his report:
Fannie and Freddie play a vital role in the mortgage market by purchasing mortgages from lenders and selling them to investors. Together the pair own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages.
"Through this prolonged stress in the housing market, we are helping homeowners across the country, supporting affordable housing, and providing financing to keep the residential markets functioning," the company's chief executive, Mike Williams, said in a statement.
The two companies, however, loosened their lending standards for borrowers during the real estate boom and are reeling from the consequences. At the end of last year, nearly 5.4 percent of Fannie Mae's borrowers had missed at least one payment - dramatically higher than historic levels.
Geez, it's as if the mortgage market couldn't have functioned without Alan's good friends "Fannie and Freddie." Some of us can remember a time long, long ago -- actually less than two decades -- when the mortgage market worked quite well and actually better without Fan's and Fred's heavy-handed, market-distorting, taxpayer-betraying interventions.
Much worse, Zibel and most of the rest of the business press continue to ignore the high likelihood that Fan's and Fred's problems went well beyond incompetence and congressionally-mandated foolishness. A vastly underreported item noted in a column by Peter J. Wallison at the Wall Street Journal in late December informed us of the following (bolds is mine):
New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A.
In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.
An Alt-A mortgage is one in which the quality of the mortgage or the underwriting was deficient; it might lack adequate documentation, have a low or no down payment, or in some other way be more likely than a prime mortgage to default. Fannie and Freddie were also reporting these mortgages as prime, according to Mr. Pinto.
Investors and Fan-Fred shareholders were very likely systematically misled about the quality of hundreds of billions of dollars' worth of mortgage-backed paper and mortgages kept in-house, respectively.
If Pinto is right -- I haven't seen any attempt to refute him -- Fan and Fred perpetrated a fraud whose combined size is a double-digit multiple of Enron and Madoff, perhaps even of Enron and Madoff combined. Zibel and others in the press should spare us the bogus assertions about how "vital" Fan and Fred have been, and start talking about how deadly the continuance of the status quo is to the nation's economic health.
Speaking of which, the Obama administration, which is constantly scolding us that the status quo in the best health care system in the world is unacceptable, seems perfectly comfortable with things as they are at Fan and Fred, and even with expanding their damage:
... the Obama administration put off the date when it plans to submit a specific proposal for overhauling Freddie Mac and its rival, Fannie Mae. The administration had promised it would reveal principles for reforming the companies by now.
Treasury Secretary Timothy F. Geithner told the House Budget Committee on Wednesday that the administration would not release legislation to reform the nation's housing finance system until next year.
... Both companies have been spending money to carry out the Obama administration housing recovery plans, largely by rewriting mortgage terms to make the home loans more affordable for struggling borrowers.
This is the status quo that is unacceptable -- and unsustainable.
Cross-posted at BizzyBlog.com.
