Fannie Mae Posts Massive First Quarter Loss Due to Decline in Home Values

By Kyle Chezum Updated on 5/9/2011

 

Home prices are as low as they've been since the depths of the financial crisis in 2008, and this has given many economists food for serious thought.  Estimates as to when the housing sector will recover have been pushed back, with many economists and industry leaders now expecting the return to normalcy to take many months longer than previously thought.

Across the board, home prices have decreased 3% this year over December's levels, and they're still trending downward with a 1% decreased between March and April alone.  The drop in value is tied to the number of foreclosed homes available.  But few homebuyers and future homebuyers recognize the effect this has had on the mortgage marketplace.

The largest impact has occurred indirectly.  Fannie Mae, the government sponsored entity that holds many of this nation's residential mortgages, posted a massive loss of $8.7 billion dollars.  The loss, Fannie officials say, is due primarily to the drop in home prices.  Fannie has requested $8.5 billion from the United States Treasury to compensate for the loss and allow the market to remain solvent.

In other words, the government is bailing out the mortgage giants again, as it has multiple times before during this crisis.   Fannie already owes $99.7 billion to the Treasury to account for the financial assistance given.  With longer timetables for recovery now projected by leading economists, t may be even longer before Fannie is able to post a profit and start significantly paying back the Treasury.