Fannie Mae taps $7.8 billion from Treasury, loss widens (Reuters)

WASHINGTON (Reuters) – Fannie Mae, the biggest source of money for U.S. home loans, on Tuesday said it needed a further $7.8 billion in federal aid to stay afloat as a shaky housing market widened its third-quarter loss to $5.1 billion.

The government-controlled firm also attributed the deeper cash drain to losses on derivatives used to hedge its exposure to interest-rate swings and on expenses related to home loans made prior to the 2008 financial collapse. In the year-earlier quarter it had a loss of a $1.3 billion.

Fannie Mae has now drawn $112.6 billion in bailout funds from the Treasury Department since being seized by the government in 2008 as mortgage losses mounted, and it has returned $17.2 billion to taxpayers in the form of dividends.

"There is certainly a lot of pre-2009 loans that we need to work through and that is certainly driving the credit losses you saw in this quarter and over the last several years," Fannie Mae Chief Financial Officer Susan McFarland told Reuters.

She said the company was "working to reduce losses" on those legacy loans and "limit taxpayer exposure."

The mortgage finance company and its smaller rival Freddie Mac were taken over during the financial crisis as losses on subprime mortgages threatened insolvency.

Given the crucial role the two play in U.S. housing finance, owning or guaranteeing about half of all mortgages, the government has pledged unlimited funds to keep the firms afloat through the end of 2012. Combined, they have cost taxpayers around $169 billion.

The plan to put them into a government conservatorship was meant to be temporary, although it is likely to be years before a long-term replacement structure takes shape. Both the Obama administration and Congress want to eventually wind them down.

Their regulator estimates that the bailout could reach about $193 billion through 2014, with dividend payments taken into account.

Fannie Mae said credit losses, which include expenses related to the foreclosed properties it holds on its books as well as on its derivatives, increased in the third quarter to $4.5 billion from $3.9 billion in the second quarter.

Freddie Mac, the second-largest source of U.S. mortgage finance, said last week it lost $4.4 billion in the third quarter and needed to borrow an extra $6 billion from the federal government.

Fannie Mae has now reported losses in 16 of the last 17 quarters. It reported a profit of $73 million in the fourth quarter of last year, but that was largely attributed to a one-time payment from Bank of America.

Fannie Mae and Freddie Mac were created by Congress to encourage homeownership. They buy mortgages from lenders and repackage them as securities for investors, with a guarantee, to ensure a steady source of home loan funds.

The two firms, along with the Federal Housing Administration, now back about nine out of 10 new home loans.

(Reporting by Margaret Chadbourn; editing by Bob Burgdorfer)

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AIG makes $972 million TARP repayment to Treasury (Reuters)

WASHINGTON (Reuters) – The Treasury Department received a $972 million repayment from American International Group (AIG.N), funded by proceeds from the sale of AIG'S American Life Insurance Co. subsidiary last November, Treasury said on Tuesday.

Treasury said its remaining investment in AIG now stands at $50 billion, and the Federal Reserve has about $17.5 billion in loans outstanding to the investment vehicles that hold former AIG assets.

After the latest repayment, the government retains a 77 percent stake in AIG through its holdings of common and preferred stock in the insurer.

At the peak of the 2007-2009 financial crisis, the U.S. government bailout for AIG was valued at about $182 billion.

The release of some of the proceeds that had been held in escrow from the sale of AIG's American Life subsidiary to MetLife last year allowed AIG to make the repayment.

Treasury said it now has received overall repayments and other income totaling $317 billion from investments made under TARP, the Troubled Asset Relief Program funded by taxpayers that was used to bail out distressed financial firms.

That $317 billion figure represents nearly a 77 percent return out of the total $413 billion disbursed through TARP, Treasury said.

(Reporting by Glenn Somerville; Editing by Leslie Adler)

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US mortgage finance head: shift risk from Treasury (AP)

By EMERY P. DALESIO, AP Business Writer Emery P. Dalesio, Ap Business Writer – Mon Sep 19, 3:25 pm ET

RALEIGH, N.C. – Government-controlled mortgage buyers Fannie Mae and Freddie Mac may reduce taxpayer risk by requiring more mortgage insurance from borrowers and charging lenders higher fees, steps that could increase borrowing costs, the head of their government caretaker agency said Monday.

Reshaping the mortgage giants three years after the federal government took over them over requires spreading lending risks, Federal Housing Finance Agency acting director Edward DeMarco said Monday at a mortgage conference in Raleigh.

The changes that could lead to higher costs for borrowers would be pursued gradually over time to avoid shocking the weak housing market, DeMarco said. But with Washington still unable to restructure Fannie and Freddie, the FHFA needed to act under its own statutory authority to ensure Fannie and Freddie continued to keep money flowing into financing home purchases, DeMarco said.

"We all knew that reforming the housing finance system was going to be difficult, but I think the general expectation was that more progress would have been made by now," DeMarco said.

Reducing the risk to taxpayers may mean private interests taking on more risk, perhaps by requiring more private mortgage insurance from borrowers and higher fees from lenders to guarantee loans, DeMarco said.

The federal government took control of the two massive mortgage buyers in 2008 to prevent their collapse as the housing market deteriorated. Bush administration officials said the action was needed to protect taxpayers and continue the availability of mortgages.

Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default, and sell them to investors around the world. The mortgage giants charge lenders a guarantee fee that covers projected credit losses from borrower defaults over the life of the loans. Fannie and Freddie will likely begin increasing those fees starting next year, DeMarco said.

President Barack Obama's deficit reduction package released Monday includes a proposal for Fannie and Freddie to increase guarantee fees by one-tenth of one percent for new mortgages, adding less than $15 a month to a typical $220,000 home loan. The administration said the increase would save the budget $28 billion over 10 years.

Changes in loan guarantee fees could vary based on the risk of loans and the borrower's location, with higher fees in states where it is more expensive and time-consuming for banks to foreclose on property, he said.

"These are steps we can take and we think that we're charged with taking that are supportive in that direction," DeMarco said in an interview with reporters after his talk. "Consumers will ultimately measure this by the price and availability of mortgage credit, and in a more macro sense ... whether there's a sense of stability or confidence in housing markets."

Talk of raising borrowing costs while home sales are slow is part of the dichotomy of expectations the housing finance agencies are facing, said Michael Lea, who directs real estate studies at the San Diego State University business school and a former chief economist at Freddie Mac. The FHFA can't afford to raise costs to borrowers now, but removing taxpayer support has to come eventually, he said.

"It's a tough situation because they get pressure from both sides on that," Lea said.

The FHFA's most pressing tasks include creating a framework allowing more borrowers who are underwater on their mortgages to refinance at rates now at levels not seen in decades. Few people are qualifying to refinance a home because they don't have the equity needed to refinance.

FHFA is considering expanding its Home Affordable Refinance Program to allow some borrowers whose mortgages are held by Fannie and Freddie to refinance into lower-rate loans even if they owe greater than 125 percent more than their home is worth, DeMarco said

The second key current priority is figuring out how Fannie and Freddie can resell thousands of government-owned foreclosures to improve returns to taxpayers and help boost falling home prices. A federal "request for information" seeking ideas closed last week resulted in nearly 4,000 proposals, many tailored to local economic conditions around the country. One of the ideas FHFA is considering is allowing previous homeowners to rent out the homes or for current renters to lease to own.

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Emery Dalesio can be reached at http://twitter.com/emerydalesio

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Risk retention crucial to housing reform: Treasury (Reuters)

WASHINGTON (Reuters) – Regulators want to ensure mortgage lenders retain some of the risk on loans they originate, as it is crucial to strengthen the housing finance system, a top Treasury official said on Friday.

"We are committed to implementing risk retention reforms in a thoughtful manner that ensures continued access to sustainable mortgage credit for low- and moderate-income borrowers and protects the health of the still-fragile housing market," Treasury Under Secretary Jeffrey Goldstein said in remarks prepared for delivery at mortgage conference.

"Better underwriting practices for mortgages are good for consumers, good for the financial industry, and good for the economy," Goldstein said.

The Treasury is involved in implementing requirements from the Dodd-Frank Wall Street reform bill to curb risk-taking at financial firms. The legislation called on federal regulators to establish new guidelines for lenders and originators of securitized loans, the types of instruments that fueled the 2007-2009 financial crisis.

The proposed rules are intended to reduce risk-taking by forcing lenders to hold onto a 5 percent stake in any loan bundled for investors in the secondary market. Regulators proposed an exemption for the so-called qualified residential mortgages when borrowers make 20 percent down payments.

Critics say the rules would keep potential first-time buyers out of the housing market and drive up borrowing costs because lenders would charge higher rates for loans that do not qualify for the exemption. A comment period on the proposed rule expires on August 1.

The new rules are being proposed jointly by six federal regulators: the Federal Reserve, the Department of Housing and Urban Development, the FDIC, the Federal Housing Finance Authority, the Securities and Exchange Commission, and the Office of the Comptroller of the Currency.

An unlikely alliance of mortgage and consumer groups -- including the American Bankers Association, the Center for Responsible Lending and the National Community Reinvestment Coalition -- have petitioned for regulators to make changes, and say the proposal could make it more difficult for borrowers to find affordable home loans.

Goldstein said regulators were trying to balance access to credit with strengthening the resiliency of the housing finance system. Risk-retention rules are an "important part" of that effort, he said.

"Fundamental flaws in the securitization market and the originate-to-distribute model were a key contributor to the housing bubble that helped precipitate the worst recession since the Great Depression," Goldstein said.

He said the final rule will address the major problem seen in the financial crisis: a "lack of alignment of interests between originators and securitizers relative to investors." (Reporting by Margaret Chadbourn; Editing by Ramya Venugopal)

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Ally files for IPO, readies for Treasury sell-down (Reuters)

NEW YORK/WASHINGTON (Reuters) – Ally Financial has filed to offer shares to the public in a first step for the U.S. government to sell down its majority stake in the former General Motors (GM.N) credit arm.

The auto and mortgage lender filed with U.S. regulators on Thursday to raise up to $100 million in an IPO, although the offering could ultimately raise about $5 billion, including common stock and convertible securities, a source familiar with the situation told Reuters.

Bad mortgage loans forced the U.S. Treasury to pour $17.2 billion into Ally during the financial crisis. So far, it has recovered $4.9 billion of taxpayer money through repayments and dividends and continues to hold a 74 percent stake in Ally, formerly known as GMAC.

Treasury also holds $5.9 billion of preferred Ally stock. Counting that stock plus the money already recovered, the government would need another $6.4 billion to break even on its investment in Ally.

Ally's IPO will be the latest in a handful of offerings by government-rescued companies that include GM and insurer American International Group Inc (AIG.N), which is preparing to sell more than $10 billion in stock in mid-May.

"The timing and the size of the proposed offering have not yet been determined," a spokeswoman for Ally said.

Treasury said in a statement it agreed to be named as a selling shareholder of Ally's common stock, but retains the right to decide whether to participate in the IPO and at what level.

Ally filed the first set of paperwork with the U.S. Securities and Exchange Commission for a nominal sum, similarly to what GM did in its first filing. The car maker had said it expected to raise up to $100 million but ultimately, including overallotments, raised $23.1 billion.

Filing for a smaller amount initially allows an issuer to evaluate market conditions closer to the time of the IPO, a common practice for big deals.

Ally's net income has bounced up and down in the past few years as the company reported a profit of $1.1 billion in 2010 after a loss of $10.3 billion in 2009 and a profit of $1.9 billion in 2008. Its total net revenue grew 22 percent to $7.9 billion last year after dropping 60 percent the year before.

Apart from Treasury, Ally's stockholders include private equity firm Cerberus Capital Management (CBS.UL), with a 9 percent stake, and GM, which owns 4 percent directly and 6 percent through a trust.

Ally's IPO filing did not specify how much the current stakeholders would sell, the number of shares in the offering, the price range, or the exchange on which they will trade.

The filing comes on the same day that the Federal Reserve released the names of other banks and companies that borrowed from its main emergency lending facility during the financial crisis.

Citigroup Inc (C.N), Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N) were listed as the lead underwriters on the offering.

(Reporting by Clare Baldwin and Alina Selyukh in New York and Glenn Somerville in Washington; additional reporting by Deepa Seetharaman in Detroit; editing by Lisa Von Ahn, Derek Caney, Richard Chang and Andre Grenon)

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US Treasury to sell $142 bn of mortgage assets (AFP)

WASHINGTON (AFP) – The US Treasury Department on Monday said it would start selling-off mortgage-backed securities worth an estimated $142 billion, in an effort to close another chapter of the financial crisis.

The department said each month it will offload up to $10 billion in mortgage-backed securities (MBS), assets which bundle together large numbers of mortgages.

"We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market," said Treasury official Mary Miller.

The products, secured by state-backed mortgage giants Fannie Mae and Freddie Mac, were bought as part of the 2008-2009 financial sector bailout.

As the housing bubble began to burst the Treasury and Federal Reserve bought up swathes of so-called "toxic assets," when losses appeared to be endangering individual banks and the financial system at large.

But the Treasury said the market for asset-backed derivatives is now much more robust, three years after the depths of the crisis.

"The market for agency-guaranteed MBS has notably improved since the time Treasury purchased these securities in 2008 and 2009," it said in a statement.

The Treasury hopes to net $15-20 billion profit from the sale, depending on market conditions.

According to Nancy Vanden Houten, an analyst at Stone & McCarthy, that estimate "might be on the high side," but a profit was likely.

"I think perhaps something closer to $10 billion is more reasonable."

The Treasury has recently offloaded equity stakes in Citigroup, General Motors, Ally Financial and American International Group that it took on to help them survive the crisis.

AIG recently offered to buy back $15.7 billion in mortgage-backed securities from the Federal Reserve as part of its effort to emerge from a government bailout.

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Treasury: Will begin selling mortgage securities (AP)

By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – Mon Mar 21, 12:34 pm ET

WASHINGTON – The Treasury Department announced Monday that it will begin selling its remaining $142 billion in holdings of mortgage-backed securities purchased during the financial crisis.

Treasury officials said the first sales of up to $10 billion in the securities, primarily issued by troubled mortgage companies Fannie Mae and Freddie Mac, would start this month.

Assistant Treasury Secretary Mary Miller said the sales represented a continuation of efforts by the government to wind down the emergency programs put in place in 2008 and 2009 to help restore market stability.

Treasury estimated it could bring in an additional $15 billion to $20 billion over what it paid for the $142 billion in mortgage-backed securities it currently holds. However, that amount would still leave the government with heavy losses from the rescue of Fannie and Freddie in September 2008.

The final cost of the bailout of the two companies has been estimated to be as high as $259 billion, making it by far the government's costliest rescue operation during the financial crisis.

Treasury has retained State Street Global Advisors to manage the sales of its mortgage-backed securities. Officials said they would post an accounting of the sales at the end of each month on Treasury's web site.

The program was designed to stabilize the market for mortgage-backed securities, which investors had started to flee as defaults in the mortgage market began to escalate. Treasury announced in December 2009 that it was halting the purchase of new securities under the program. At the time it had purchased a total of $220 billion worth of mortgage-backed securities.

Treasury said in its announcement Monday that the market for mortgage-backed securities had "notably improved" since 2008 and 2009.

In a fact sheet, Treasury said it planned to sell up to $10 billion of its $142 billion in mortgage-backed securities per month. At this pace, Treasury said the whole portfolio would be disposed of in about one year. But Treasury said if market conditions change, it is possible it will take longer to fully exit from the program.

Treasury said it believed the sales could take place with a "minimal impact" on home mortgage rates.

Treasury said that the announcement to sell the remaining holdings of mortgage-backed securities was not related to the impending battle over the debt limit. Treasury's latest estimate is that the government will reach the current $14.3 trillion borrowing limit between April 15 and May 31.

Republicans are demanding steeper cuts in government spending before they will agree to raise the debt limit. Treasury Secretary Timothy Geithner has warned that failure to raise the borrowing limit would trigger an unprecedented default by the government on the national debt which would drive up the government's borrowing costs.

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