Government

Fannie/Freddie Federal Housing Bailout on Track to Double?

WASHINGTON — The government spelled out Thursday just how much the most expensive rescue of the financial crisis will end up costing taxpayers — as much as $259 billion for mortgage buyers Fannie Mae and Freddie Mac.

That figure would be nearly twice the amount Fannie and Freddie have received so far. To date, the rescue of the two companies has cost taxpayers $135 billion. They have repaid $13 billion to the Treasury Department as dividends.

By contrast, the combined bailouts of financial companies and the auto industry have cost taxpayers roughly $50 billion, according to Treasury’s latest projections. And the bailouts of Wall Street banks alone, which sparked public fury, have so far brought taxpayers a $16 billion return.

Fannie and Freddie were battered by losses on loans they backed, once the housing bubble burst and foreclosures soared. The two companies buy home loans from lenders, package them into bonds with a guarantee against default and sell them to investors.

On Thursday, the government provided a broad estimate of the costs of bailing out Fannie and Freddie. The final cost will depend on the direction of home values over the next few years. If prices fall sharply, as some analysts forecast, Fannie and Freddie won’t be able to recover as much money on foreclosures. They would require more taxpayer aid.

The Fannie-Freddie bailout could end up costing taxpayers between $142 billion and $259 billion through 2013, the Federal Housing Finance Agency projected. The worst-case scenario assumes the economy would fall back into a recession and home prices would sink an additional 24%, until early 2012.

The best-case scenario assumes home prices remain flat for the next two years.

“If the economy does unravel in the next couple of quarters, then the costs will mount very rapidly,” said Mark Zandi, chief economist at Moody’s Analytics.

Thursday’s estimate was the first time the housing agency has released a public estimate of the taxpayer tab. The combined bailout of the two mortgage companies is on track to be the largest of the financial crisis.

The agency’s figures take into account dividends that the agency estimates Fannie and Freddie will end up repaying. The terms of their rescue require them to pay a 10% annual dividend to Treasury. That amount is expected to balloon in coming years. Regulators expect Fannie and Freddie to repay an additional $67 billion to $91 billion in dividends over the next three years.

The two mortgage finance companies have been operating under federal control for more than two years. When the government stepped in to take them over in September 2008, their rescue was expected to cost only a combined $200 billion.

Allegations that mortgage lenders nationwide cut corners on foreclosure documents as they moved to seize millions of homes have put Fannie and Freddie under scrutiny. The two companies have used so-called “foreclosure mill” law firms that are accused of processing thousands of files in haste.

A deposition released by the Florida attorney general’s office this week revealed that the office manager of the Florida-based Law Offices of David J. Stern, which Fannie and Freddie used, would sign 1,000 files a day without reviewing them. The deposition also said the office manager allowed paralegals to sign her name when she got tired.

Fannie and Freddie say they’re suspending use of that firm.

Several banks have been accused of similar conduct. If they can’t resolve their foreclosure problems and are barred from seizing many homes, Fannie and Freddie could absorb huge losses on loans they own or guarantee. That’s because they would no longer be able to recover anything on loans that have gone bad.

Delays in foreclosures would hurt Fannie and Freddie in areas of the country where home prices are falling. The longer they wait to sell homes, the less money they stand to recover.

But some analysts doubt the document mess will have much impact on Fannie, Freddie or the pace of foreclosures. It’s likely to result in weeks of delays for foreclosures, not months, Zandi said.

Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion.

The bill for rescuing Fannie and Freddie has been rising, while the estimates for other rescues have been sinking. What was once the most expensive single bailout —American International Group— is now projected to cost taxpayers only $5 billion.

Even that bailout could turn a profit, Treasury said this month, depending on the price it gets on its future sale of AIG shares. The Obama administration’s rescue of the U.S. auto industry is projected to cost $17 billion, Treasury has said.

Over the next year, lawmakers plan to review the nation’s mortgage-lending system and consider a potential replacement for Fannie and Freddie. The financial overhaul law didn’t address that issue.

Republicans have blasted the Obama administration’s handling of Fannie and Freddie, saying the government’s reliance on them to modify home loans for troubled borrowers is increasing the cost of their bailout.

“At some point, we have to say, enough is enough, and push forward with a complete overhaul of the government-backed mortgage giants,” said Rep. Scott Garrett, R.-N.J.

He said the ballooning costs of their rescue highlight the need to replace Fannie and Freddie with a new system of providing mortgages.

AP Business Writers Christopher S. Rugaber and Daniel Wagner contributed to this report.
Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Comments (26)

  • pibillwarner
    Posted on January 6, 2011 at 1:27pm

    UPDATED Attorney for David J. Stern Law Firm Fumbles the Ball in $25 Million Dollar Lawsuit, The Stern “Motion to Dismiss” Denied by Sarasota Judge, the case now continues, see link http://pibillwarner.wordpress.com/2010/12/29/updated-attorney-for-david-j-stern-law-firm-fumbles-the-ball-in-25-million-dollar-lawsuit-the-stern-motion-to-dismiss-denied-by-sarasota-judge/

    Report Post » pibillwarner  
  • oneforall
    Posted on October 22, 2010 at 10:44am

    Fannie Mae — just another failed hold-over from the New Deal. It has failed twice now. Only 1 generation after it was created — it was bloated in debt by the 1960′s — LBJ took Fannie Mae off the books — he had to pay for his “Great Society” and Vietnam .

    LBJ turned Fannie Mae “private” — with half the board members appointed by Congress and the president — sure, that’s a private corporation?

    Then Congress created Freddie Mac as “competition” for Fannie Mae— this was a complete absurdity — this type of fascist business model will always fail— and it has again.

    These two corrupt “private corporations” must be killed— put an end to this New Deal crap which is still with us today– Fannie Mae has failed twice– enough is enough!

    Report Post »  
  • kuhl
    Posted on October 22, 2010 at 7:15am

    They raided social security to fund this “program”. Isn’t it about time the the House Banking committee is held accountable for breaking the law? Someone can’t pay their mortgage because they wanted that big house before they were financially ready for it. How is that the problem of the taxpayers? I had to work to get enough equity to buy our house. I expect no bailout if I exceeded my ability to pay.
    Time for people ot take personal responsibility for their actions and stop blaming others.

    Report Post »  
  • Arc
    Posted on October 22, 2010 at 3:31am

    ………..and Maxine Waters says, “ Fannie and Freddie are in the capable hands of Barney Frank”
    and I’ll just bet that Franklin Raines is “laughing up his sleeve” at us

    Report Post » Arc  
  • Zoli
    Posted on October 22, 2010 at 1:42am

    Individual Rights
    We are living in a society where every citizen have a right to earn more than he need to sustain life, to leave inheritance and to have a family business, this is only possible in the USA, please don’t take it for granted! At this point the government outgrew its citizens. I suspect that the number of employees working for, cities and municipalities, counties and state governments and all the federal agencies, too numerous to list exceeds 50% of working Americans. The Real-property is being consolidated. The equity and the principle from our investments are being misappropriated by our government. I’m concerned that the very Feudalism that our Founders left behind is reacquiring in the conversation around the progressive movement that is plaguing the rest of the world. The World is progressing from a Feudal Social Structure where the real-estate is owned by governments, large landowners, corporations, and lately in the USA by Agricultural Concerns, towards Communism where everything and everybody will be under the government control. USA is the only country in the World that all individuals are allowed to hold real-estate and accumulate wealth.
    Can we defend our homes, business and bank accounts? It was not that long ago that the family farms were going under, small factories was closing and the big box stores come on to the scene and trade with Communist China started. McCarthy is turning over in his grave. The problem that we are facing is new generations, new cultures and new world powers fighting to re-divide the World. At home there is a major migration of people from south and a new generation looking for redistribution of wealth. We are losing our jobs to third world, starving people willing to work for a dollar a day. Our homes are being foreclosed on. The greed of our business leaders is enormous. The living standards between east and the west are not comparable. How will we defend the Constitution to assure that individual rights and equal rights and right to own land and the right to accumulate wealth continue to be our USA the example to the World?
    http://captainvarga.blogspot.com/

    Report Post » Zoli  
  • Lessgovt
    Posted on October 22, 2010 at 12:43am

    This is another example of runaway Govt. The govt. should not be in this business – the govt. Has no incentive in balancing the books or making a profit because they just get more from the taxpayers. This program was politically motivated to provide loans to those who could not afford not afford them – redistribution of wealth. Now that the has come due, there is no one to pay the bill,& house prices which were inflated by this very process (lots of buyers with less inventory of homes at the time) has caused this collapse. This what happens when the govt gets involved in guaranteeing risk- the private industry is not willing to take such risks on bad loans. This whole system is unsustainable. All the assets of Fannie & Freddie need to be sold off.

    Report Post »  
  • Workforit
    Posted on October 22, 2010 at 12:38am

    We need the Glenn Beck team to do a show on the basic principles of interest…

    “The Time Value of Money” and how it is used to inflate, manipulate, distort, and otherwise scam the U.S. Tax payer out of “Trillions” of dollars.

    Let’s say you have a home mortgage with a balance of 250K and the almighty progressive government decided to whack every bodies MORTGAGE BALANCE in half … That’s it… Nothing else… No government stimulus, home owners, business owners, commercial property owners… everyone.

    Ask yourself this, “What would you do with the money you now were able to spend every month on other things?” You would spend it… kick starting the economy, creating jobs, creating demand for all sorts of goods and services…

    You would spend it or save it.

    Who gets caught holding the bag? Fannie and Freddie of course, all the greedy union pension funds, insurance funds, REITs, and a ton of others that made promises to pay based on 2008 interest income for the next 30 years of payments that would now be cut in half… Can you say “Never Gonna Happen”… sure I new you could… Should it happen, absolutely and it would put the losses at the feet of the ones who created and inflated the problem… Wall Street, Banks and the government administrations that let them.

    Report Post »  
  • wash1776
    Posted on October 21, 2010 at 11:53pm

    It is obvious those freaks in D.C. are going to do whatever they want because it doesn’t really affect them since they steal more than enough from the taxpayers that anything they pass would cost them. Why do all of the people that serve in the government wind up with so much money? The longer they are in office–the richer and more corrupt they become. Hell is really going to be full of politicians in the end times.

    Report Post »  
  • jdavis1510
    Posted on October 21, 2010 at 11:42pm

    But for the likes of Barnie “Mush Mouth” Franks, FANNIE and FREDDIE are fundamentally sound… What a joke.

    Report Post »  
  • MiketheTrucker
    Posted on October 21, 2010 at 10:44pm

    And the scam continues. They will keep getting “bailed out” until we have a regime change.

    The taxpayers should send the bill to Barney the Banking Queen, Tax-cheat Timmy, Chris Dudd.

    Then, we need to indict Bernanke, THEN investigate him for “seditious conspiracy”. This is ALL linked together, and it also ties to the stock market plunge of ‘08 that conveniently happened just before the ’08 elections.

    There IS a nefarious plot behind all of this, and if Glenn can dig up the facts on Soros, I think he’ll find that he is involved.

    Report Post »  
  • Barb1954
    Posted on October 21, 2010 at 10:43pm

    So the Gov will OWN all these Homes/Businesses? Yes indeedy!

    Report Post »  
  • THE FIXER
    Posted on October 21, 2010 at 10:19pm

    Don’t give Fannie & Freddie one thin dime. Let them go under. Let the homebuyers involved have the houses and consider them “bailed out”. No pain, no gain.

    Report Post » THE FIXER  
  • RightPolitically
    Posted on October 21, 2010 at 10:04pm

    Shut these TWO F(ill in the blanks)ers down NOW!

    Report Post » RightPolitically  
  • barrycooper
    Posted on October 21, 2010 at 9:02pm

    I wrote a piece on Money Creation, here: http://www.goodnessmovement.com/files/Download/website–Money%20Creation.pdf

    What you have to grasp, is that the whole housing crisis was created by greedy bankers writing bad loans that were gobbled up by Fannie Mae and Freddie Mac, who had no lending standards. Not only that, but they backed–with our tax dollars, as we are finding out–hundreds of billions of dollars of mortgage backed securities on Wall Street. It was the inability to rate the risk of those mortgage bundles that led finally to the crash.

    The crash was initiated, though, by both Fannie Mae and Freddie Mac declaring they were bankrupt as a result of bad loans. The existence of both organizations is an affront to free markets, democracy, and social justice.

    Democrats–and the Socialists who back them–don’t want to alleviate poverty. They want control. They want a two tiered society, with them in charge, throwing us whatever scraps they feel like. They use the emotive power of racism, poverty, the environment, and whatever is handy to get support for their very UN-Democratic agenda.

    Report Post »  
  • Sledgehammer
    Posted on October 21, 2010 at 8:36pm

    To all America, as a Citizen of Connecticut, I am so sorry for Chris Dodd, He is the poster boy for term limits, even though he is sneaking out, with out hand cuffs, he is finding a less than freindly reception at home.

    Report Post » Sledgehammer  
  • tankchaser
    Posted on October 21, 2010 at 8:34pm

    Isn’t it strange that the government has just pushed the financial reform act of 2010 down Americas throat and the only organizations they exempted from the rules are Fannie and Freddie? Now they want to bail them out again, looting the Treasury is all they are doing. it almost seems that F&F are congressional slush funds.

    Report Post »  
  • psst
    Posted on October 21, 2010 at 8:16pm

    This is an outright lie.
    Maxine Waters said F&F were sound institutions.
    And under the great leadership of Mr Franklin Raines, were doing an excellent job.
    And a Mr Bwany Fwank said republicans were just trying to scare people.
    Honest, those were the words spoken by Fwank and Mz Red Waters some years back.
    And as we all know, these congress persons only have the best interest of the country-wide Dodd at heart .
    We send congress men and women to DC to look after their interests

    Report Post »  
    • FreedomOfSpeech
      Posted on October 21, 2010 at 8:20pm

      Ha! Barney, it’s 10 pm. Do you know where your idiot boyfriend is?

      Report Post » FreedomOfSpeech  
    • psst
      Posted on October 21, 2010 at 8:41pm

      Free, Bwany said to tell ye that his boyfriends whereabouts is none of yer bidniz.
      First off, he wants to know which one O them were you inquiring about?
      But if you must know, his numero uno BF was busy running his usual pimping ring out of his (Bwany’s ) home..(what!! you think the DC apartment was his only place O bidniz/)
      Fwank said 200K does not grow on trees.Numero uno must work “hard” for it.

      Report Post »  
  • Psychosis
    Posted on October 21, 2010 at 8:10pm

    this is the politician piggy bank……….good luck fixing it………….i suggest we kill fannie and freddie and get them out of our misery ………………….but this will never happen also by they way…….bailout amount is estimated at over 600 billion, not 300 or whatever they said it was at first

    Report Post » Psychosis  
  • FreedomOfSpeech
    Posted on October 21, 2010 at 8:08pm

    The CEO thugs of these companies paid themselves millions while giving it to the taxpayers. They should be thrown in prison for this. We should also let them fail. Let the market work it out. No one is entitled to keep their home if they can’t pay for it.

    Obama burns books like the Nazis.

    Report Post » FreedomOfSpeech  
    • Sledgehammer
      Posted on October 21, 2010 at 8:30pm

      This the hard truth, A smart banker will re-evaluate these loans, those that can pay their way would be ok. Now the sad truth if these idiots in congress, did not try to fix what was not broken, we would not be having this discussion now! I am one of those, who has seen his hours cut, between my two jobs, I barely pull 60 hrs. Maybe this election cycle, they will get the message!

      Report Post » Sledgehammer  
    • FreedomOfSpeech
      Posted on October 21, 2010 at 8:47pm

      @SLEDGEHAMMER Very true. I guess I see that capital will naturally flow from one to another when the market is allowed to function on its own. A foreclosure could be an opportunity for someone who previously could not afford a home and did not overextend himself. No one is entitled to hold capital that they cannot pay for. Sounds harsh but it’s capitalist.

      Report Post » FreedomOfSpeech  
    • snowleopard3200
      Posted on October 21, 2010 at 9:08pm

      My Grandfather ran a farm and landscape-lawncare business; small business operates exactly on the same lines as a persons own finaces – no handling of money well and wise leads to the business going under. He worked two jobs to found the business, and on the way paid for the business and his own families home within 15 years by saving, and smart investing.

      Was it easy, no, it took many years to earn a “living profit” yet it did reach that point; he had the dream and the vision to make it happen. He developed the plan, and worked step by step to the end, and it was one of his crowning achievements.

      Capitalism for small business works, as it does for all of us, it takes time, and the markets will regulate themselves for the most part. It changes, it grows, and from time to time parts die off or emerge in new directions.

      Lets get the Government out of our lives and business as much as possible – limit it to what is only needed!

      http://www.artinphoenix.com/gallery/grimm (mix art)

      Report Post » Snowleopard {gallery of cat folks}  
    • casseopea42
      Posted on October 22, 2010 at 8:32am

      This whole idea that a company is “too big to fail” is crazy. Should a company fail it leaves a vaccum that another company fills. That company is smarter than the first because they learn from the first companies mistakes. Maybe we should name this process “leave no company behind”

      Report Post »  

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