Fannie Mae Needs Another $10 Billion Taxpayer Bailout

Fannie Mae and its sister firm, Freddie Mac, were taken over by the federal government last September amid the global financial meltdown. This will be Fannie Mae’s third draw and the mounting price tag for the rescue of Fannie and its goverment-sponsored sibling, Freddie Mac, is surpassed only by insurer American International Group Inc., which has received $182.5 billion in financial support from the government so far.

In one hopeful sign, Fannie Mae narrowed its quarterly loss to $14.8 billion, or $2.67 per diluted share, down from $23.2 billion, or $4.09 per share, in the previous quarter. The company lost $2.3 billion, or $2.54 per share, in the second quarter last year.

Credit losses from the housing crisis are still to blame for Fannie Mae's downward results. The company racked up $18.8 billion in credit-related expenses during the latest quarter. Reports reflect that the company reduced its provision for credit losses to $18.2 billion, from $20.3 billion in the first quarter, because of a slowdown in the increase of estimated defaults and losses per default.

The value of non-performing loans on its books increased to $171 billion as of June 30, compared with $144.9 billion on March 31 and $119.2 billion on December 31.

The Obama administration is leaning heavily on Fannie Mae and Freddie Mac to pull the country out of the housing meltdown. They are key players in the President's foreclosure rescue program and the companies will soon have a new regulator. James Lockhart announced this week that he is stepping down as head of the Federal Housing Finance Agency and Ed DeMarco, who helped develop and oversee the insurers' participation in the administration's rescue program, will serve as the agency's acting director.

The Obama administration is expected to unveil plans for Fannie and Freddie early next year. Options being considered include keeping the companies private, winding down their operations, merging them into a federal agency or separating out their bad mortgage assets into a new company backed by the government.