Fannie and Freddie Bailout to cost our Grandchildren between $221 and $363 Billion

On Christmas Eve of 2009,

Tim Geithner announced his decision

to lift the caps on how much bailout money

failed mortgage giants Fannie Mae and

Freddie Mac would receive to stay in business.

(The Geithner Gift that Keeps on Giving)

FHFA Report

The Federal Housing Finance Agency (FHFA) today released projections of the financial performance of Fannie Mae and Freddie Mac (the Enterprises) including potential draws under the Preferred Stock Purchase Agreements (PSPAs) with the U.S. Department of the Treasury. To date, the Enterprises have drawn $148 billion from the Treasury Department under the terms of the PSPAs. Under the three scenarios used in the projections, cumulative Enterprise draws range from $221 billion to $363 billion through 2013.

The projected credit losses in each scenario primarily reflect possible further losses on the Enterprises’ pre conservatorship mortgage business. As time passes, Enterprise dividend payments on Treasury preferred stock make up larger portions of the draws. Under the scenarios used in the projections, if dividend payments on preferred stock were excluded, cumulative Enterprise draws range from $142 billion to $259 billion. FHFA Report

The New York Times

By: Binyamin Appelbaum
10/21/10
WASHINGTON — The federal bailout of Fannie Mae and Freddie Mac could cost taxpayers another $124 billion over the next three years if housing prices continue to fall sharply, according to new government projections.

On the other hand, if the economy continues to recover, the troubled mortgage companies could require as little as $6 billion in additional aid, the Federal Housing Finance Administration said Thursday.

The Treasury Department has pumped $148 billion into the two companies since they were seized by the government in 2008, to cover their losses on soured mortgage loans. The government is propping up the companies to make sure that money remains available for new home mortgage loans. In return, the companies have paid dividends to the federal government totaling $13 billion, making the net cost to the Treasury $135 billion so far.

The new projections suggest that the companies will not need much more money, so long as the economy does not falter. The housing finance administration, which oversees Fannie and Freddie, said that it was publishing the numbers to inform public debate about the future of the two companies. The Obama administration plans to propose changes to the government’s role in housing finance early next year.

“These projections are intended to give policy makers and the public useful snapshots of potential outcomes for the taxpayer support of Fannie Mae and Freddie Mac,” said Edward J. DeMarco, the agency’s director.

The projections offer three situations. In the most dire, the economy starts shrinking again, driving down prices and increasing defaults. The companies could then require another $215 billion from Treasury. But in this situation they would return $104 billion to Treasury in the form of dividend payments in return for the aid, including the $13 billion already paid to the government. The total cost to taxpayers: $259 billion, including the $148 billion given to the companies since 2008.

In its most optimistic assumption, the agency projected that housing prices would merely stay flat over the next three years. The companies would then require $73 billion in additional aid, and return $67 billion in new dividend payments in addition to the $13 billion already paid. The total cost to taxpayers: $141 billion.

The intermediate assumption is the agency’s best guess about what the future holds. Housing prices would fall a little farther, and then begin to recover. Fannie and Freddie would take about $90 billion in additional aid and return about $71 billion in new dividend payments on top of the $13 billion already paid. The total cost to taxpayers: $154 billion.

Special Thanks to Barney Frank...

Back at a 2003 hearing, Frank pooh-poohed Republican and regulator concerns about the size and scope of Freddie and Fannie, saying he didn’t want to emphasize “safety and soundness.” Instead, he said, “I want to roll the dice a little bit more in this situation towards subsidized housing.”