Tags: fannie | freddie | loans

Next Jab at Fannie, Freddie: Bad Apartment Loans

By Dan Weil   |   Friday, 20 Nov 2009 10:04 AM

The woes of housing finance giants Fannie Mae and Freddie Mac only worsen.

Now they are being hit by loan losses in the apartment building sector. The two companies boosted their lending in that area just as the commercial real estate market peaked.

Losses now are multiplying for Fannie and Freddie, essentially wards of the state after $110 billion in aid from the government.

Fannie, which has been more active than Freddie, is in the biggest trouble, The Wall Street Journal reports.

Its serious delinquency rate — loans that were 60 days or more past due — almost quadrupled to 0.62 percent as of Sept. 30 from a year ago.

About 25 percent of Fannie’s $180 billion in apartment-building loans were made near the top of the market in 2007, according to The Journal.

Those loans make up almost 50 percent of its commercial-loan delinquencies.

Fannie and Freddie’s woes spell trouble for the apartment building sector, as they accounted for 84 percent of the lending in that sector last year.

A Harvard University report says that without more purchases from the companies, the apartment market could lock up.

“Cash-flow-positive projects may not be able to get refinanced and will be pushed towards default,” the report said.

Analysts at investment house Keefe, Bruyette and Woods wrote to clients that Fannie and Freddie need more capital, money which would likely only come from taxpayers.

“In this scenario, both the common and preferred equity of the GSEs (Fannie and Freddie) should be worthless," they wrote.

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The woes of housing finance giants Fannie Mae and Freddie Mac only worsen.Now they are being hit by loan losses in the apartment building sector. The two companies boosted their lending in that area just as the commercial real estate market peaked.Losses now are multiplying...
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2009-04-20
 

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