Fannie Mae and Freddie Mac – What will be the future burden on US taxpayers?

What will their final tally be and will we ever know for sure?

8-24-13:  Two options, wind them down and turn over to private financial investment may raise mortgage interest rate by .75%, or implement a Federal Mortgage Insurance Corporation to backstop after private lenders assume 10% of equity and this option may also raise rates by .75%.  What will happen?  Source:  WSJ, 8-14-13, A9

Update – 8-10-13: Freddie Mac earned $5B in 2Q13 and will plan to return $4.4B in dividends – they are not required to pay their $71B loan from US Govt but have returned $41B of the $71B in dividends to US Treasury.

10-22-2010:   Just heard Bloomberg News report that Fannie and Freddie may need up to $360 billion ($148 billion so far) through 2013 (—I guess because they were STUPID and bought alot of CRAP mortgages).

Nutshell lesson for today – Fannie Mae (Federal National Mortgage Association – FNMA) and Freddie Mac (Federal Home Loan Mortgage Corporation – FHLMC), were established decades ago as Government Sponsored Enterprises (basically independent corporations) but with the full backing of the US Government if they failed…and they basically did …and then went under conservatorships and were absorbed into the US Government Control in September 2008. Their importance in real estate was basically to purchase residential mortgages/loans that met FNMA/FHMLC criteria from lenders.

This created a “secondary mortgage market” (and competing with other investors buying these loans too) which in turn gave money back to lenders to make more loans. This keeps the real estate market/home building/home sales moving because lenders didn’t need tie up their money to carry the loans since they had a ready and willing buyer – the US Government—-Cha-ching!

Fannie and Freddie hold about $5.5 Trillion in mortgages. Based on current market value of loans held by Fannie Mae alone, the values are down $145 Billion. Also, about 5.5% of the $3 Trillion mortgages (i.e., $165 Billion) are 90 days or more behind

Based on two articles in the WSJ in 5-11-2010 issue, Fannie is requesting another $8.4 billion to cover losses. That means we will have spent $145 billion for Fannie’s ($84 billion losses) and Freddie’s ($61 billion losses).

How much more are you and I going to pay for this?

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