Fannie Mae may need another $16 billion in aid

updated 8:38 p.m. ET Jan. 26, 2009

WASHINGTON - Mortgage finance company Fannie Mae said Monday that it likely needs up to $16 billion from the government as conditions in the U.S. housing market continue to deteriorate.

Fannie Mae’s disclosure that it expects an injection of $11 billion to $16 billion in taxpayer aid comes after sibling company Freddie Mac disclosed last week that it’s likely to require as much as $35 billion in federal support on top of the $13.8 billion it received last year.

Fannie, which has yet to receive any government aid, said in a Securities and Exchange Commission filing that the actual amount needed “may differ materially from this estimate” because its fourth-quarter financial statements are still being prepared.

Washington-based Fannie and McLean, Va.-based Freddie were seized by federal regulators last fall after facing mounting losses on loans they backed during the housing boom. An agreement with the Treasury Department allows the government to invest up to $100 billion in each company, though some analysts have speculated that the companies may need more than that.

Any assistance for Fannie or Freddie would be formally requested by the companies’ federal regulator, the Federal Housing Finance Agency. A spokeswoman for the agency declined to comment Monday.

Fannie posted a $29 billion loss in the third quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax credits that have become worthless.

Fannie’s net worth — the value of its assets minus the value of its liabilities — fell to $9.4 billion at the end of September from $44.1 billion at the end of 2007. If that number turns negative, the company would be forced to obtain funding from the Treasury Department.

Analysts also expect that legislation allowing bankruptcy judges to reduce the interest rate or principal balance of home loans will reduce the value of mortgage securities held by Fannie and Freddie. Such legislation likely will lead to an additional $20 billion in taxpayer aid for both companies, Credit Suisse analyst Moshe Orenbuch wrote in a report Monday.

Most Democrats in Congress, along with President Barack Obama, support the bill while groups representing the lending industry have ramped up their lobbying machines to stop it.

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