Status of Financial Bailout: Why Banking System Faces Continued Need to De-leverage

The financial bailout continues, including TARP and Conservatorship of Fannie Mae (FNM) and Freddie Mac (FRE). The table below summarizes the total bailouts in the United States. Even though the “too big to fail” banks have repaid TARP, there is still $244.9 billion outstanding at banks and other financial institutions. Fannie and Freddie at $144.9 billion and growing, are clearly becoming the biggest hits to taxpayer wallets. Notice the dismal outlays for Foreclosure Relief (i.e. Main Street), which is a paltry $90 million. Not shown is the TARP specific outstanding balance, which totals $184.1 disbursed mostly to community and regional banks.

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Statistics from Fannie Mae show continued mortgage deterioration, which should lead to another dip in housing prices. This will keep the pressure on community and regional banks. Since May 5th, Fannie and Freddie have cost taxpayers an additional $19 billion.

According to Fannie Mae home prices in the United States are down 18.4% since the peak. Fannie Mae Seriously Delinquent Single-Family Mortgage Delinquencies rose to 5.47% at the end of Q1 2010 versus 5.38 at the end of 2009 and 3.15% a year ago, which is a sign that "The Great Credit Crunch" is deepening. Fannie Mae Real Estate owned totaled 109,989 properties at the end of Q1 2010 versus 62,371 a year ago. Acquisition growth has been accelerating from 49,121 in 2007, 94,652 in 2008, 145,617 on 2009 and 61,929 in Q1 2010, which is an annual rate of 247,716. Alt-A mortgages on Fannie Mae's books total $238.3 billion.

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Since the end of 2001, GDP in the United States is up 38.6%, while total assets in the banking system are up 66.6%. This over-leverage exists even as de-leveraging totaled 5.3% in 2009.

Commercial Real Estate Loans (nonfarm / nonresidential) are up 91.6% since the end of 2001 at $1.1 trillion. This category will be facing writedowns likely starting in Q1 2010. Construction & Development Loans are still up 96% since the end of 2001 despite being de-leveraging of 6.2% in 2008 and 23.6% in 2009.

Home Equity Loans are up 258.9% since the end of 2001 despite a decline of 18.3% in 2009. Homes were used as piggy banks to the tune of sequential increases of 39.1% in 2002, 35.0% in 2003 and $41.8% in 2004. This is a major reason for 23.3% of homeowners being underwater, which is another worsening housing statistic.

Fannie Mae is not alone in the growth in REO. I do not have Freddie Mac statistics yet, but among FDIC insured financial institutions REO is up 795.8% since the end of 2001 to a record $41.4 billion worth of properties. Noncurrent Loans are up 526.4% since the end of 2001. Notional Amount of Derivative Contracts are up 370% since the end of 2001, and we have many time bombs ticking in this category as the “too big to fail” banks lobby for loose financial regulations.

Disclosure: No positions