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July 31st, 2009

Fannie, Freddie bailout unlikely to be repaid

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This does not come as much of a surprise:

The regulator of Fannie Mae and Freddie Mac said it was unlikely that the federal government would ever be paid back the entire $85 billion spent so far on bailing out the firms — and added that the cost was going to rise as additional funds are drawn.

“Their book is so large,” James Lockhart, director of the Federal Housing Finance Agency, said at the National Press Club. “It’s hard for me to see that they will be able to repay all of that.”

Lockhart’s comments were a blunt acknowledgment that while the government has long said its bailout of the financial sector largely represents an investment that will be repaid, billions of dollars are likely to be lost.

Almost a year ago, the Bush administration made a $200 billion commitment to keep Fannie and Freddie solvent as the housing market self-destructed. In return, the two GSEs (government-sponsored enterprises) were instructed to repay the money with a 10% dividend. Their line of credit, if you will, was extended by the Obama administration to as much as $400 billion — and the subtext behind Lockhart’s announcement is that none of our investment, whatever the ultimate price tag, is likely to be repaid.

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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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