Fannie Mae and Freddie Mac Still Reeling
As of May 8th the two largest mortgage finance companies in the United States are trading under a $1 and looking at borrowing more from the Treasury to meet the requests and requirements placed on them to help individual borrowers by the U.S. government. With the increased job losses and the ending of many of the short-term programs that were in place for distressed homeowners 803,489 properties were served default papers, auction notices, or were seized in the first quarter of 2009. This figure is 24% more than in 2008.
Fannie Mae requested an additional capital investment of $19 billion from the U.S. Treasury this week. This is in addition to the $15.2 billion received on March 31st. The institutions created to be financial helpmates to mortgage lenders are stating they are dependent on government infusions for their continued survival.
President Franklin Roosevelt created Fannie Mae in the 1930’s to help revive the economy in the Great Depression era. Freddie Mac came into being in 1970 to buy mortgages from banks so the banks would have more money to make additional loans to aspiring homeowners. Now, in May of 2009 Fannie Mae and Freddie Mac are failing to achieve their original purpose as well as struggling to meet the new demands being placed upon them. The amount of help they can provide will depend on how much the government helps them.
Business Bankruptcy of General Motors Likely
With losses of nearly half its income as of May 7th General Motors is being seen as being in the final downward spiral to bankruptcy. The first quarter of 2009 ended with losses of $6 billion dollars. Currently General Motors is staring at the June 1st deadline issued by the government to complete a viable restructuring plan. The failure to produce such a plan will have the automobile icon in a Chapter 11 bankruptcy similar to what Chrysler experiencing. Bankruptcy specialists in Chicago think bankruptcy will be the best way for General Motors to make the fundamental restructuring changes needed to survive in today’s economy.
At this time General Motors is operating on the $15.4 billion federal loans issued in the beginning of 2009. As a cost cutting measure General Motors is closing U.S. factories to cut down car dealership inventories. The planned closing could last as long as 11 weeks and will make General Motors second quarter even more dismal. Consumer confidence in General Motors availability to handle the warranties for their vehicles is being cited as a primary reason why so many American’s have looked elsewhere for their new automobile.
General Motors Chief Financial Officer Ray Young is admitting that recovering from the vicious cycle of lost consumer confidence and lost revenue is extremely hard to do. The company’s attempts to conserve capital with the closing of many factories country wide for nearly 3 months this year will do nothing for consumer confidence. The hope is that revenue will pick up again as a result of the reduced inventory.
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