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August 12th, 2009

Fannie, Freddie “Can’t” Fully Repay Taxpayers

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Here’s a story that managed to slip under the radar: Fannie Mae and Freddie Mac’s regulator announced a few weeks back that taxpayers shouldn’t expect to be repaid in full by the mortgage giants. Federal Housing Finance Agency (FHFA) Director James Lockhart said in a speech in Washington last month that some of the GSEs losses will “never be repaid.”

Lockhart’s skepticism didn’t stop there. In a television interview, the head of the FHFA suggested taxpayers should look at the losses as a necessary price we had to pay:

“Unfortunately, I guess we have to look at it as an investment by the taxpayer to stabilize the mortgage market,” Lockhart said later in a Bloomberg Television interview.

“If the mortgage markets stabilize, it will certainly reduce their expected losses significantly,” he said. “When they return to profitability is really hard to predict. That will depend on the success of” President Barack Obama’s loan modification program.

Lockhart’s admissions that Fannie and Freddie’s return to “strong profits” is years away, not to mention the fact that he estimates that the companies will continue to lose money for the next year or two, certainly doesn’t bode well for taxpayers. The director offered an even more hollow reassurance when he said that he believes mortgage market stability hinges on the president’s under-preforming loan mod program. Things aren’t looking up financially for taxpayers in this regard.

Since the third quarter of 2007, Fannie and Freddie have reported losses to the tune of $150 billion. Since entering conservatorship last September, the government has pledged $200 billion in capital commitments.

While TARP banks are eagerly working hard to repay their Federal loans in order to get out from under the government’s umbrella, the way in which Fannie and Freddie were given their money, they may never have to pay the money back at all . As far we’re aware, the taxpayer dollars given to Fannie and Freddie wasn’t structure the same way as the TARP funds — the money was never a loan, it was merely a infusion of capital.

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About the HSH Blog

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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