Bailouts

Rising Tab for the Mortgage Mess


The bailout of Fannie Mae (FNM) and Freddie Mac (FRD), already the largest on record, could reach $1 trillion. Fannie and Freddie, 80 percent-owned by taxpayers, hold or guarantee 53 percent of the nation's $10.7 trillion in residential mortgages. Their federal regulator is having them delist their shares, which have been trading for about $1 each, from U.S. stock exchanges. As of Mar. 31, borrowers were late on $338.4 billion worth of loans, up from $206.1 billion a year earlier. The companies have drawn $145 billion from an unlimited government line of credit. Here are four estimates of the final bill.

$160 bn

The White House Office of Management & Budget made this estimate in February, saying that a strengthening U.S. economy could bolster the housing market and that the companies could earn enough to begin paying dividends to the government in 2012.

$230bn

In a December report, Barclays Capital analysts said this was the most likely tally, based on defaults doubling and losses averaging 50% on each loan. In the worst case, the bank sees defaults tripling, 60% losses, and a total cost of $500 billion.

$389bn

The amount Fannie and Freddie would need through 2019, according to a Congressional Budget Office estimate in August of last year. A big contributor to the total: $500 billion of subprime loans made before 2008 that are expected to have losses of 30% to 50% of principal.

$1tr

A reasonable worst-case scenario," says Sean Egan, president of Egan-Jones Ratings, assuming a 20 percent loss on the companies' more than $5 trillion in loans and guarantees, similar to what other big mortgage companies, like Countrywide Financial, suffered.

Gittelsohn is a reporter for Bloomberg News in Los Angeles.
Woellert is a reporter for Bloomberg News in Washington.

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