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By Al Yoon
NEW YORK (Reuters) - Fannie Mae and Freddie Mac could tap the government for up to $51 billion in coming weeks, exceeding some Wall Street estimates, so they can continue to operate as the largest providers of funding for U.S. residential mortgages.
The storm of rising delinquencies and falling securities values that led to the government's seizure of the companies in September accelerated in the last quarter, requiring Fannie Mae and Freddie Mac to seek more of the stop-gap measures organized by the U.S. Treasury and their regulator. Analysts predicted more capital needs from Treasury through 2009.
Fresh losses in the most recent quarter will probably be the harshest on Freddie Mac (FRE.P), which holds a larger portfolio of risky mortgage securities, including subprime bonds. The McLean, Virginia-based company said on Friday it may have to seek $30 billion to $35 billion in capital from the Treasury in the form of senior preferred stock.
Fannie Mae could see greater losses through 2009 than Freddie Mac from guarantees on mortgage-backed securities, according to analysts, including Rajiv Setia of Barclays Capital in New York.
The companies have provisioned for just a third of cumulative losses on guarantees of $45 billion and $80 billion, respectively, he said.
"The questions are the source of the losses and how much is set aside in reserves for future losses," said Jim Vogel, a strategist at FTN Financial in Memphis, Tennessee, in a note to clients. "Both will determine, along with further housing performance, the size of the draw at the conclusion of the first quarter."
Bank Bailout Risks Default US and UK politicians seem determined to bankrupt their economies in their struggle to save the banks. The UK has launched its second bank bailout, tipping another 50 Bln GBP into the vaults, along with 450 Bln GBP in loan guarantees. The new US administration has yet to show it has a better idea. If the UK government does assume responsibility for bank debts, it could push the entire country close to default. The US and UK administrations are still fighting a liquidity crisis (meaning a blockage in the veins of the financial system) when the real problem is insolvency (cardiac arrest). By diverting all available funds to prop up the walking dead, the governments are sucking up money from the rest of the economy. The bailout is quite simply making the crisis worse. The cost will push economies which are already deep in recession, into the industrial equivalent of famine. Western politicians who want bankers to apologise for their role in the financial crisis are Wall Street's equivalent of Lenin's "useful idiots".