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November 17th, 2008

Auto-Bailout Critics Should Re-Examine Freddie

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As the Senate begins to debate a possible bailout of the Big Three, critics have continued to argue that any form of government loan would be like “pouring money down the drain.” If a zero return — or even a loss — on government loans remains a major cause for concern amongst lawmakers, perhaps Capital Hill should refocus their attention once again to the money vacuum which is Freddie Mac. Due in a large part to the mortgage and credit crisis’, the mortgage giant continues to post billions in quarterly losses, draws steady sums from a $100 billion government line of credit, and seems to be next in line for more money:

As a result of the losses, the Treasury will have to infuse $30 billion to $50 billion in 2009, and postpone any thoughts of spinning the company back as a publicly traded one till 2010, analyst Paul Miller said in a note to clients.

Freddie Mac reported a $25.3 billion quarterly loss on Friday as the housing slump worsened, forcing the second-largest provider of U.S. home loan funding to draw on a $100 billion Treasury Department lifeline.

The McLean, Virginia-based company’s regulator had submitted a request for the Treasury Department to provide $13.8 billion for Freddie Mac to erase the shareholder equity deficit, which the company expects to receive by November 29.

Since going into conservatorship in September, an arrangement some experts expect to last beyond 2009, Freddie’s stocks have plummeted, and the mortgage financier has not been able to perform its duties in today’s constrained market.

While the once-titled TARP program now seeks to improve credit conditions — which are designed to free up more lending power — Freddie Mac has needed the government to continue to infuse billions of dollars. If critics are so concerned about the management of the American auto industry, perhaps they should rethink, or at least retool, their approach to kick-start an industry that could cost the Federal government double what the Big Three could.

Readers: Do you agree with a Big-Three bailout?

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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