Fannie, Freddie Bailouts Could Cost the Taxpayers $154 Billion

The ultimate cost of bailing out Fannie Mae and Freddie Mac could cost as much as $154 billion unless the economy improves, according to a government report.  The mortgage giants rescue – which has kept the housing market on life supports – already has cost $135 billion to cover losses on home loans in default.  The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, says the most likely scenario is that house prices will have to fall slightly during a slow economic recovery, then rise a bit.  If that occurs, the Fannie and Freddie bailout will cost taxpayers an additional $19 billion.  A more upbeat prediction sees the housing market recovering sooner, which would require just $6 billion more for a total bill of $141 billion.

Washington, D.C., research firm Federal Financial Analytics believes the FHFA projection provides a sound indication of what the bailout will cost, but “nowhere near a definitive picture of it.”  Fannie and Freddie issued a joint statement that said “It’s simply impossible to forecast reliably now how much foreclosuregate will cost.”  Fannie and Freddie’s plight stands in sharp contrast to the success of the Trouble Asset Relief Program (TARP), which is now expected to cost just 10 percent of the $700 billion originally forecast.

Federal regulators seized Fannie and Freddie in September of 2008 in the wake of the financial crisis.  Since then, the government has kept the agencies solvent, with President Obama pledging unlimited support.  “From the beginning, the Obama administration has made it clear that the current structure of the government’s role in housing finance, while necessary in the short-term to provide critical support to a still-fragile housing market, is simply not acceptable for the long term,” said Jeffrey Goldstein, Treasury Department undersecretary for domestic finance.