Big Fannie Mae Losses Prompt Fears of Failure

Crash would be big blow to US economy, housing market
By Kevin Spak,  Newser Staff
Posted May 6, 2008 8:16 AM CDT
In this Oct. 30, 2007, file photo, an auction sign rests in front of this foreclosed home in Shaker Heights, Ohio.    (AP Photo/Tony Dejak)
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(Newser) – Fannie Mae lost a worse-than-expected $2.2 billion this quarter, forcing it to cut its dividend and seek $6 billion in capital. The news is especially troubling as Fannie and Freddie Mac, the companies Washington relies on to keep the housing market functioning, are under unprecedented pressure, the New York Times reports. Many are now worried that one or both of them, after stepping in to rescue a torrent of troubled mortgages, may soon need bailouts themselves.

Today’s report reassured no one, as Fannie told investors that next year’s credit losses would be even worse than this year’s. Fannie and Freddie handled 80% of all mortgages this quarter—more than double their share in 2006. “They could cause an economywide meltdown if they got into real trouble and leave the public on the hook for billions,” said Sen. Mel Martinez, a former housing secretary.