More problems at Fannie Mae… but there are reasons to hope

The nation’s largest real estate financier, Fannie Mae, just announced a loss of $23.2 billion for the first quarter. This number almost equals the loss of $25.32 billion during the 4th quarter of 2008.  Fannie Mae now has a negative net worth of $19 billion.

Those are staggering numbers, and some would say that they represent a continuing deterioration in the housing market. As a result of the losses, Fannie Mae has asked for an additional $19 billion in funds from the government.

Fannie Mae now owns some 62,000 homes that it acquired through foreclosure, just about the same number as on December 31st, 2008. They acquired 25,000 homes through foreclosure since then, which must mean that they also sold 25,000 foreclosed homes. This was during a period when Fannie Mae had largely suspended foreclosures. This must mean that, in spite of Fannie Mae’s efforts, those 25,000 additional foreclosure cases must have been hopeless, with no potential for recovery. The rate of loan modifications was modest compared with the total number of distressed homes.

So what's the good news?

First, financing activity has been spurred by historically low interest rates.  According to a recent Fannie Mae press release, lenders sold  $175 billion in new loans to Fannie Mae in the 1st quarter of 2009.  Of course, much of that was refinance activity. With rates below 5 percent, even consumers who financed their homes in 2008 at 6 percent can benefit from a refinance. Indeed, at my business, most of our recent activity has been through refinancing for borrowers who completed loans with us in just the past few years.

Another reason for hope is the new refinance programs announced by Fannie Mae and Freddie Mac that will allow borrowers, even those who owe more than the current values of their homes, to take advantage of these lower rates. The program is available for homeowners who owe between 80-105 percent of the value of their homes without requiring Private Mortgage Insurance (PMI). To find out if this program might benefit you, visit Makinghomeaffordable.gov/.

Additionally, there have been a healthy number of purchases in the past few months. This purchasing trend indicates a resurgence of nationwide interest in real estate.  As values have dropped, buyers are finally coming off of the sidelines and buying homes. Quite frankly, with values AND mortgage rates so low, a situation emerges in which many more people can find affordable homes.

If you are a prospective homebuyer, I hope that this news will give you some encouragement.  It's a great time to buy!

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower
articles, Randy is a mortgage broker who has financed over $1 billion
in properties. He writes about home buying and real estate finance
topics for CreditBloggers.com.

Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.