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Fannie And Freddie May Need Infusion

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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.

So even in happy clappy land these companies will still need more cash.


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During the 2008 financial crisis, Washington put Freddie Mac and Fannie Mae into "conservatorship" - a quasi-nationalised status in which the federal government promised to maintain their solvency by injecting new equity on demand.

Originally, the two home loan agencies' total needs were estimated to be $200bn - of which three-quarters has already been provided - but the FHFA has now revised that figure upwards.

The regulator's upper estimate of $363bn would only happen if there is a second downturn in the US housing market - something that many economists believe has already begun since the expiry in April of a tax credit for homebuyers.

Litigation risk

Freddie Mac and Fannie Mae bought up billions of dollars of mortgages from the big banks, then repackaged them and sold them to investors with their own guarantee.

The FHFA now says that the banks may have breached promises they made in the original sale agreements about the quality of the loans they were selling.

The decision to hire a litigation firm follows the FHFA's decision to issue 64 subpoenas to banks in July, requiring them to provide documentation that would show what they knew about the loans they were selling.

If the regulator can prove its case, the banks would be forced to buy the loans back at their original face value.

I suppose if they can make the Banks buy the loans back then losses would be minimised.

Edited by interestrateripoff
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This is truly unbelievable - FHFA now says that we are only 1/2 over on the money that Fannie and Freddie will absorb from the taxpayer as a result of all the scams and frauds?

Washington, DC – 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.

Here's the problem - if you read the report there is no recognition of the root issues that underlie these securities - the possibility that they own nothing.

But that's not the only screw job in the "projections" - take a look here:

Notice what's going on here - all of the aggravating or mitigating factors are set to be the best scenario forward.

This is called "rigging the game", and in this case it results in dramatically lower loss estimates than will actually occur under any except the "rosy" scenario.

If we get a spread blow-out, if we get a security price deflation (like, for instance, if all these MBS have nothing in them), if we have rising interest rates (due to, for example, QE blowing up in Bernanke's face), if we have retained portfolio problems - then the losses will be dramatically - perhaps outrageously - higher than projected.

This is ridiculously-understated in terms of potential exposure - but what else do you expect out of Washington DC? Truth? Oh hell no - and when the bad scenario shows up, we'll be told "nobody could have seen that coming" - just like we always are.

Dennigers take on it.

See link for the chart.

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  • 3 years later...


While it will come as a surprise to exactly nobody, certainly nobody who understand that the US financial system is no better financial shape than just before the Lehman crash as nothing has been fixed and everything that is broken has been merely swept under the rug (for details see Paul Singer's explanation posted last night) of epic-er leverage, the news that when (not if) the US economy succumbs to a severe economic downturn Fannie and Freddie would require another taxpayer funded bailout, one of $190 billion or even more than the first $187.5 billion-funded nationalization of the GSEs, can only bring a smile to one's face.

A smile because according to some idiots, the GSEs are viable, standalone enterprises whose "net income" should be given on a silver platter to institutional investors who will then make a killing courtesy of what were years and years of government liquidity injections. Sure, do that. Just answer this: will those same investors who demand full ownership rights also put up the hundreds of billions of capital that will be needed when the next bailout bill comes due, as the alternative is the complete collapse of US housing. We didn't think so.

Luckily the US is recoverying so no bailout will be needed....

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With 1 In 3 Homes Unaffordable, Freddie Mac Prepares To Enter The Trailer Home Loan Market

We can’t say this is surprising. After all, with average peasants, we mean citizens, now priced out of the domestic housing market (Zillow recently showed 1 in 3 homes are unaffordable) due to billionaire financiers and foreign oligarchs buying up all real estate in cash purchases, American serfs now will find out where the “elites” think they belong. In trailer homes, naturally. Oh, but the story gets better, a lot better. As is generally the case in the USSA these days, crony capitalist oligarchs have perfectly positioned themselves to benefit financially from the final transition of Americans to neo-feudalism.

Trailer park caravan prices to soar?

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