WASHINGTON — A year after the near-collapse of Fannie Mae and Freddie Mac, the mortgage giants remain dependent on the government for survival and there is no end in sight.
The companies, created by the government to ensure the availability of home loans, have tapped about $96 billion in government aid since they were seized a year ago this weekend. Without that money, the firms could have gone broke, leaving millions of people unable to get a mortgage.
Many questions remain about Fannie and Freddie's future, but several things are clear: The companies are unlikely to return to their former power and influence, the bailout is sure to cost taxpayers even more money and the government will have a big role in the U.S. mortgage market for years to come.
Fannie Mae was created in 1938 in the aftermath of the Great Depression. It was privatized 30 years later to limit budget deficits during the Vietnam War. In 1970, the government formed its sibling and competitor Freddie Mac.
The companies boomed over the past decade, buying mortgages from lenders, pooling them into bonds and selling them to investors. But critics called them unnecessary, arguing that Wall Street could support the mortgage market itself.
That argument has faded in the wreckage of the failed loans that led to the housing bust. Investors have fled any mortgage investment that doesn't have the government standing behind it.
"No longer is anyone arguing that the private sector can handle this on its own," said Jaret Seiberg, an analyst at Washington Research Group.
The government stepped in to take control of the two companies on the weekend of Sept. 6, after they were unable to raise money to cover soaring losses and their stock prices plunged.
A year later, the government controls nearly 80 percent of each company, and their problems are growing as defaults and foreclosures continue to skyrocket.
The percentage of homeowners who have missed at least three months of payments is normally under 1 percent for both companies. Now it's nearly 4 percent for Fannie and 3 percent for Freddie.
Fannie had nearly $171 billion in troubled loans as of June and had set aside $55 billion to cover those losses, while Freddie had nearly $78 billion in troubled loans and reserves of only $25 billion.
"It's much worse than anybody thought," said Paul Miller, an analyst with FBR Capital Markets.
It could be another year before the final taxpayer tab for Fannie and Freddie is known, and that outcome will depend on when delinquencies and foreclosures finally crest.
Barclays Capital predicts the companies will need anywhere from $160 billion to $200 billion out of a potential $400 billion lifeline, which the Obama administration expanded from the original $200 billion set last fall. Most analysts don't expect the money to be returned anytime soon, if at all.
"What will ultimately end up happening," said Barclays analyst Ajay Rajadhyaksha, "is that the U.S. taxpayer swallows the bill."
Despite federal control, Fannie and Freddie have recently surged on Wall Street. The companies said Friday that they now comply with New York Stock Exchange requirement for an average closing price of $1 a share or more. But most analysts still say the companies' stocks will be worthless in the long term.
The Obama administration doesn't expect to announce its plans for the two companies until early next year, but powerful interest groups aren't waiting until then. The Mortgage Bankers Association on Wednesday offered a detailed plan to replace Fannie and Freddie with several federally-regulated private companies.
That proposal still retained a big government role, giving those companies the ability to issue mortgage bonds formally guaranteed by the federal government.
In the meantime, both Fannie and Freddie have been drafted to implement the Obama administration's effort to attack the foreclosure crisis. Freddie Mac now has about 600 workers either modifying loans or monitoring compliance with the program's rules. Fannie Mae said it has added hundreds of employees to work on foreclosure prevention efforts.
The early results have been disappointing. For example, while Fannie or Freddie refinanced 2.9 million loans from January through July, only about 60,000 were taking advantage of an Obama administration plan to help "underwater" borrowers who owe more than their homes are worth.
At the same time, nearly 70 percent of U.S. mortgages made in the first half of this year went through Fannie or Freddie, up from 62 percent last year, according to Inside Mortgage Finance, a trade publication. That's a big change from three years ago, when the risky lending market was still alive and Fannie and Freddie's share was down to 33 percent.
"We've been the mortgage market," said John Koskinen, Freddie Mac's chairman. "Without that financing availability, people would not have been able to get a mortgage."
Fannie and Freddie don't directly make loans, but they exert enormous influence over the industry by issuing detailed standards for the loans they will purchase. Lenders must feed their borrowers into Fannie and Freddie's computer systems, which evaluate borrowers based on their credit scores and the size of their down payment.
Both companies, facing huge losses, have kept those standards tight, frustrating many. Eric Delgado, a mortgage broker in Rockville, Md., says there's zero flexibility with either company. Either borrowers qualify or they don't. No arguing. No excuses.
But some in the industry say the restrictions are long overdue after several years of lending excesses.
"You needed to bring some reality to the market," said Michael Moskowitz, chief executive of Equity Now, a New York-based mortgage lender, which does about 80 percent of its business with Fannie and Freddie.
Fannie Mae CEO Michael Williams declined an interview request, but said in an e-mailed statement that "it is not enough to help a borrower own a home. We must also help ensure that they will be able to stay in the home over the long term."