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Fannie Mae's burn rate

Fannie Mae lost a shade less than $20 billion last quarter (off revenues of merely $6 billion). That's a serious burn rate. And it led some colleagues and I to try to calculate Fannie Mae's actual burn rate. If you split that into $20 bills, you'd have to burn more than 11,111,111 bills a day to reach that, or 7,716 $20 bills a minute. Impressive work!

On the bright side, it's cheering to hear that Fannie Mae has adopted right-to-rent, though they're calling it "deed-for-lease." Props to economists Dean Baker and Andy Samwick, who have been beating this drum for a long time now...

By Ezra Klein  |  November 5, 2009; 5:38 PM ET
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That's "colleagues and *me*". You couldn't calculate the burn rate? It had to be the actual burn rate? Also, there were 92 days last quarter, so you didn't quite get the "actual" burn rate, which means no "Impressive work" for you!

More importantly, the billions being endlessly sucked into the government run end of the housing market is that much less wealth that other people will have to spend on the things that they need.

How far down the people of the country will allow the government to drag things is an open question, but none of it is "cheering".

Posted by: msoja | November 5, 2009 6:58 PM | Report abuse

While the Fannie plan is conceptually similar to Baker's right-to-rent scheme there is one very large difference. The Baker proposal was to force lenders (all lenders) to rent back houses at fair market rents. Fannie is doing this voluntarily (or perhaps with Treasury "encouragement"). But it is not compelling non-GSE holders of mortgages to do own-to-rent programs. Also, Bakers proposal was to lock the lender into 5+ year leases.

His plan was not really politically viable, given it's need to override 50 sets of state property law. Though I was sympathetic with the intent.

The other aspect lost here is that the GSE loans/houses are much more widely distributed to middle income households than the privately held mortgages which are much more concentrated in lower income communities. So the Fannie own-to-rent plan will miss many of the loans among the neighborhoods and households most in need of it.

Posted by: danimmer | November 5, 2009 9:57 PM | Report abuse

So, like, I dunno, this is probably a dumb question, but where I come from rent is usually higher than a mortgage payment. I mean, if you have the money for the down payment, and the credit, it's a no brainer to buy a house. Presumably, people that are being foreclosed on had the money and the credit to buy a house in the first place. If they can't manage the mortgage, how can they manage the rent? Or are we talking a very small subset of those affected by the housing crash? And in either case, why should one suppose that the greater American housing market won't end up looking like the one in New York City after all the intrusions and dislocations by government are said and done?

Posted by: msoja | November 5, 2009 11:30 PM | Report abuse

*where I come from rent is usually higher than a mortgage payment. *

That usually isn't the case. In many markets, you can usually afford "more home" for your money by renting, with the incentive to buy coming in the form of a fixed monthly payment over the long term and an opportunity to build up equity. In the same way that a housing bubble exists when mortgage payments are far, far higher than rents on a comparable home, if rent is usually much higher than the mortgage payment on a comparable home, then I would assume that there is either an artificial shortage of rental properties in your area or that the housing market is heavily depressed.

Posted by: constans | November 6, 2009 10:04 AM | Report abuse

constans, I don't have time right now, but I don't think you are correct. Is it not true that landlords often carry a mortgage on the properties they rent? One would assume that one payment is higher than the other.

Posted by: msoja | November 6, 2009 1:54 PM | Report abuse

My general understanding of a "burn rate" (which could be wrong) is that it typically refers to the amount of cash being consumed to keep a business alive and in ongoing operation (e.g., payroll, rent, utilities, materials, etc.; see GM). And my impression of the Fannie Mae news (which could also be wrong) was that the real driver of that 20 billion loss was building up reserves for expected losses on its exising portfolio.

Now, I suppose that, given that Fannie Mae is in the "business" of acquiring mortgages, it's not totally unreasonable to think of that 20 billion loss as a burn rate, but it seems more accurate to think of it as an accounting recognition of losses that have already been incurred.

Posted by: retr2327 | November 6, 2009 4:04 PM | Report abuse

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