Posted on October 22nd, 2010
Regulators of housing finance giants Fannie Mae and Freddie Mac are now saying that both companies may need as much as $19 billion more from taxpayers in the next three years. So far the government (read: taxpayers) has shelled out $135 billion to help bailout Fannie and Freddie since the housing crash, when both were taken in government conservatorship in September 2008.
“Today’s projections show that, in the most likely economic scenario, nearly 90% of the losses at Fannie Mae and Freddie Mac are already behind us,” said Jeffrey Goldstein, under-secretary for domestic finance at the Treasury Department, as quoted in a Wall Street Journal piece.
Yet if things get worse in the economy over the next three years, the regulators are saying the total taxpayer bill for Fannie and Freddie could grow to roughly $363 billion.
That same Wall Street Journal article by Nick Timiraos made some statements that make the whole situation even more maddening.
[These estimates] don’t include the 10% dividend payments that the firms must make every quarter to the U.S. government… The Treasury has agreed to inject unlimited amounts of cash to keep the firms afloat…As the firms burn through their credit losses, they will still have to ask Treasury for money to make its dividend payments.
So Fannie and Freddie are borrowing money from the government to repay the government?!?! Does this sound ridiculous to anyone?
The Obama administration has promised to deliver a plan to revamp the firms, and the broader U.S. housing-finance infrastructure, by January 2011. The dividend payments on those Treasury investments are likely to prevent Fannie and Freddie from ever returning to profitability.
So by making Fannie and Freddie, pay us back for lending them money, we prevent them ever making money to pay us back. What?!?!
We have certainly needed both of these companies to get us through the worst of the housing crisis, supplying the mortgage loans for most Americans in the past year, but we can only hope the Obama plans for them will do something to correct this crazy cash conundrum that has been created by the bailout.
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