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Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)Can Need More Bailouts

U.S. Housing Finance company Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) can need more bailouts from taxpayers in the coming time. It is the same case applicable for Federal Home Loan Mortgage Corp (OTCBB:FMCC). The results were highlighted in a report prepared by FHFA Inspector General. The two companies are at risk due to declining reserves and profits.

The details

The government bailed out the two companies in 2008 at the peak of the financial crisis and has since held all their quarterly profits. Also, it demanded the companies should reduce their capital buffers by almost $600 million annually, ultimately posting zero in 2018. FHFA Inspector General said that the future profitability of Federal National and Freddie are far from assured. The firms could again post losses on their existing derivatives portfolios as they did in 4Q. The prevailing financial performance increases the likelihood of additional funds from Treasury.

The concerns

Federal National’s Chief Executive warned about the same problem back in February when the company said it would make the smallest payment to U.S. taxpayers in last four years. The concerns raise pressure in the Congress to reconsider housing finance laws. However, a real push on the same front is not expected anytime soon.

The future ahead

The U.S. taxpayers injected $116.1 billion into Federal National following the housing market collapse in the U.S. Freddie Mac received $71.3 billion as bailout funds after the financial crisis. Both companies have already repaid the amount they have received as bailout funds. The government-run firms do not lend funds directly, but support the housing market by guaranteeing new mortgages in the U.S. Federal National and Freddie Mac buy loans from lenders and then package them into securities so as to sell them to investors. The two companies also announced on Tuesday that they are altering the way they modify loans in order to attract borrowers to repay their amount.

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