For those who want to know how much worse that housing market is getting they need look no further that the quarterly results of Fannie Mae (FNM). The mortgage operation lost $15.2 billion and will need another $10.7 billion from the government to continue.

The primary reason for the loss is that 4% of the loans that Fannie Mae owns or controls were delinquent, up from 1.4% a year ago.

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The most important conclusion from the Fannie Mae earnings is that, in addition to the costs of the deficit, and the stimulus package, and healthcare reform, there are “legacy” problems in the financial system that the government has practically obligated itself to fund. AIG may still be in that category, but it may be able to sell assets fast enough to stay ahead of another request from the government. Fannie Mae still faces enough of a headwind that it cannot be self funding or self liquidating.

Fannie Mae is the part of the taxpayer’s burden that the government avoids mentioning when it talks about the money it has to spend in the future to keep the recovery on track.

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Executive Producer:  Philip MacDonald

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