There are many market participants that believe that Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae may need another Treasury bailout in the future. It is not that the two Government Sponsored firms are not making profits; in fact they have already repaid the complete bailout amount till this time. The two companies have repaid almost $100 billion more than the actual bailout provided to keep them running.
Fannie Mae posted earnings of $1.3 billion in 4Q2014. Federal Home Loan earned almost $200 million. The numbers hardly appears like they are not capable of meeting necessities. Due to the bailouts, the banks are required to maintain larger cash reserves, yet Federal Home and Fannie have nearly none. The prime reason is the treasury and administration are stealing them blind by taking their profits away, wiping out reserves and forcing them in a position of needing another bailout from the Treasury to stay afloat.
In last February, Fannie Mae CEO Tim Mayopoulos stated as the firm does not have a capital reserve, it faces with a risk to depend on taxpayers for another bailout. As per reports, Mayopoulos stated that the probability of needing to take a loan from Treasury rises over time.
These GSEs, Federal Home Loan and Fannie purchase the big share of residential mortgages. Due to this, individuals with less than stellar credit are in a position to purchase houses for smaller down payments. The loans are sold to F&F and need to pass a test. The two companies decide that these given loans are safe and have less chances of default.
The test methods and results have been confirmed to be right. This is what the financial figures discloses the investors. The fact is that the profit is being absorbed by the government, jeopardizing the capability of Federal Home Loan and Fannie to survive another housing downfall where defaults rise.