It wasn’t a good day yesterday for GSEs Fannie Mae and Freddie Mac. It’s apparent that they are being hammered by the "Credit Crisis Part II":
Nov. 21 (Bloomberg) — Freddie Mac, the second-largest U.S. mortgage-finance company, may need to raise as much as $6 billion to bolster its capital amid the worst housing slump in at least 16 years.
The government-chartered company yesterday said it would seek more reserves in a “large transaction,” after reporting its biggest quarterly loss. The amount may be $5.5 billion to $6 billion, according to Fox-Pitt Kelton analyst Howard Shapiro. Friedman Billings Ramsey analyst Paul Miller and Gary Gordon, an analyst at Portales Partners LLC in New York, predict $5 billion.
“It’s not going to be a small number,” said Gordon, who is advising investors to refrain from buying more of the company’s shares.
What will this mean to a mortgage market that has already tightened significantly? According to Inman News:
[Hat tip L!]
Freddie Mac’s loss, and a similar turn of events at Fannie Mae, could weaken the ability of both companies to serve as bulwarks to mortgage lenders who have become increasingly dependent on their ability to buy, guarantee and securitize loans.
Major lenders like Countrywide Financial Corp. have shifted the majority of their production into loans eligible for repurchase or guarantee by Fannie and Freddie, as Wall Street investors have become reluctant to buy securities backed by mortgage loans that lack such guarantees.
