Freddie, Fannie Bailout Could Cost Taxpayer $400b, Loan Repurchases Pursued

Freddie, Fannie Bailout Could Cost Taxpayer 0b, Loan Repurchases Pursued

Article by Michael Kraus

Yesterday Edward DeMarco, acting director for the Federal Housing Finance Agency (FHFA) addressed the House Financial Services Committee to discuss the bailout of Fannie Mae and Freddie Mac, among other things. From reading a lot of the statements he has made over the last 6 months to a year, DeMarco seems like a straight shooter who is actually looking out for the taxpayer’s money.

DeMarco said that the total cost of bailing out Freddie and Fannie could cost taxpayers 0 billion (that’s eleven zeroes, folks). Sure it’s expensive, but at least it prevented millions of people from losing their homes to foreclosure and housing prices from plummeting…what’s that you say, it didn’t do that at all? It actually enabled banks to pawn off their exposure to bad loans on taxpayers? Awesome, money well spent (“moral hazard” indeed).

Thankfully, DeMarco and others at the FHFA are trying to get banks to buy back some of the bad loans they dumped on Fannie and Freddie, as they are contractually obligated to do. According to a recent AP article by Alan Zibel via yahoo news, many banks have been uncooperative in buying back loans. DeMarco characterized the delay in mortgage buybacks to be “a significant concern” and that further action may be taken to force the issue if “discussions do not yield reasonable outcomes soon”.

According to the same article, the largest U.S. banks could take losses upwards of b if Fannie and Freddie can force loan repurchases.

Fannie Mae and Freddie Mac were seized and put under government conservatorship in 2008 in order to prevent their insolvency. Thus far we have spent approximately 0 billion bailing them out. The Obama administration promised an unlimited amount of capital to backstop the losses of the two agencies.

Reform of Fannie and Freddie has been a hot-button issue lately, although not so hot-button that politicians felt the need to address it prior to this November’s mid-term elections. The government has held a series of roundtable meetings in order to get proposals and ideas about what should be done with Fannie and Freddie, what may replace them, and how to avoid the type of risky behavior that is now costing taxpayers 0 billion. There is little question that housing reform will not be easy. It will take a dedicated bipartisan effort in order to achieve reform on this scale. A plan for Fannie and Freddie is supposed to be due by January 2011.

About the Author

Michael Kraus is the web editor and contributing web content writer for Total Mortgage Services, LLC, as well as all related sister sites. Total Mortgage Services, LLC is an industry leading mortgage broker and lender headquartered in Milford, Connecticut.

This entry was posted in Mortgage Refinancing and tagged , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *