Fannie Mae Challenges Bank of America, Needs Another Bailout

Fannie Mae needs another government bailout and is telling Bank of America to pay what they oweFannie Mae is asking for another bailout despite raking in billions in 2011, and another could be on the way if Bank of America doesn’t pay Fannie Mae what they owe.

Fannie Mae is requesting yet another bailout, this time to the tune of $4.57 billion. The news comes with the release of the government-sponsored enterprise’s (GSE) release of its fourth-quarter and full-year financial results for 2011.

The GSE entered conservatorship in 2008, and has received $116 billion in bailouts since. It has paid back roughly $19.8 billion.

Michael J. Williams, president and CEO of Fannie Mae, attributes the losses to falling home prices and believes the GSE is on the right track.

“While economic factors such as falling home prices and high unemployment produced strong headwinds for our business again in 2011, we continued to grow a very strong new book of business as we have since 2009. During the year, Fannie Mae funded the market with more than $650 billion in liquidity and maintained its focus on strengthening Fannie Mae’s ability to support and improve the housing industry,” Williams said in a press release Wednesday.

Despite what everyone else believes – that the GSE is in big trouble – executive vice president and CFO Susan McFarland agrees with Williams. “We continue to build a high-quality new book of business for both single-family and multifamily. Our new single-family book now accounts for more than half of our overall single-family guaranty book of business.”

Fannie’s net revenue declined 17 percent in the fourth quarter to $4.5 billion, but the GSE still managed to take in more than $20 billion in 2011.

More trouble could be on the horizon. According to the report released Wednesday, Bank of America has failed to honor Fannie Mae’s repurchase requests in a timely fashion. The banking giant owes Fannie for faulty loans made during the housing boom, and they’re not paying up: measured by unpaid balance, Bank of America made up 52 percent of Fannie’s outstanding loan-purchase requests as of December 31, 2011.

Fannie Mae is trying to resolve the issues with Bank of America, but it warns if it is unable to collect the funds it expects from BofA it may be required to seek an additional bailout from the government.

Fannie Mae did not renew its loan repurchase agreement with Bank of America because of the bank’s resistance to buy back defaulted mortgages. Bank of America earlier claimed it was the one who decided to stop selling loans to Fannie Mae.

The problems continue to rise from loans originated between 2005 and 2008 and have cost Fannie upwards of $140 billion. The report indicates the GSE expects losses to remain high for some time due to defaults and modifications on these loans.


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