Regulator: Fannie, Freddie Bailout to ‘Remain Under $400 Billion’

Fannie Mae and Freddie MacThe total cost of supporting mortgage financing giants Fannie Mae and Freddie Mac, already propped up by $148 billion in taxpayer funds, should “remain under $400 billion,” said the acting chief regulator over the two companies which was placed into U.S. conservatorship two years ago. 
The future of Fannie and Freddie will be outlined by the Obama Administration in a much-anticipated overhaul plan for the government-sponsored enterprises, which became virtual wards of the U.S. government in September 2008 after sustaining massive financial losses from purchases of faltering interest-only or subprime mortgages.
An open credit line with the U.S. Treasury was established in December 2009, which runs through the end of 2012, to cover quarterly shortfalls with both financing entities.
“Even under severe stress scenarios, Treasury draws remain under $400 billion. In less severe stress scenarios, losses are much less than that,” said Edward J. DeMarco, acting director of the Federal Housing Finance Agency (FHFA), the regulator over Fannie and Freddie. “When this preliminary work is finalized in the coming weeks, we will make the results and the details surrounding the projections available to the public. FHFA.”
DeMarco re-affirmed that $400 billion ceiling – and promised more precise projections of the bailout expenses for both companies —  in testimony today on the future of mortgage financing before the U.S. House of Representatives Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises.
DeMarco said that since the end of 2008, both Fannie and Freddie have “mostly eliminated their purchases of Alt-A and interest-only loans, two of the poorest performing mortgage products in the market..”
Fannie and Freddie’s exit from these markets is he said, because interest-only loans previously purchased by Fannie and Freddie have “serious delinquency rates of more than 18 percent, and Alt-A loans have serious delinquency rates of more than 12 percent.”
“These products, which may be appropriate in limited circumstances, have produced substantial losses for the Enterprises,” DeMarco said.
DeMarco said the Obama Administration must careful weigh the federal government’s degree of future involvement in mortgage financing.
If the government provides “explicit credit support for the vast majority of mortgages,” it would likely seek input into the allocation or pricing of mortgage credit for particular groups or geographic areas.
“The potential distortion of the pricing of credit risk from such government involvement risks further taxpayer involvement if things do not work out as hoped.” DeMarco said.
However, government guarantees and taxpayers infusions when necessary would eventually help the housing market recover from the devastation of the last 24 months,” he said.
“Explicit credit support for all but a small portion of mortgages, on top of the existing tax deductibility of mortgage interest, would further direct our nation’s investment dollars toward housing,” DeMarco said. “A task for lawmakers is to weigh such incentives against the alternative uses of such funds.”

2 thoughts on “Regulator: Fannie, Freddie Bailout to ‘Remain Under $400 Billion’

  • September 16, 2010 at 4:36 pm

    Mr. President, why don’t you address mortgage fraud which caused billions of dollors loss for the Americans? Why not hold Wells Fargo accountable for making mortgage loan based on hugely inflated appraisal?
    How many jobs have to be created and how hard taxpayers have to work in order to fill up the deep hole mortgage fraud has created for the society? Bottom line, where is justice when the largest mortgage lender Wells Fargo is foreclosing home based on fraudulent loan and hugely inflated appraisal. Isn’t it prosecutable crime that majority of State Attorney General’s offices
    are prosecuting?
    Where is HOPE for homeowners? Is it too much to expect that Wells Fargo, the largest mortgage lender in US not to defraud homeowners like us by making fraudulent loan and foreclosing home based on hugely inflated appraisal?

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