Bloomberg News

Fannie and Freddie Projected to Need Less Aid, Regulator Says

November 01, 2011

Oct. 27 (Bloomberg) -- The cumulative taxpayer aid to government-owned mortgage companies Fannie Mae and Freddie Mac could reach $192 billion by the end of 2014, the companies’ regulator reported.

The projection is the worst-case scenario in an analysis released by the Federal Housing Finance Agency today. Under the best case, the companies would cost taxpayers a net $121 billion through 2014, the agency said.

Both numbers represent an improvement from a similar projection a year ago, which showed that in the worst case the companies could need a cumulative $259 billion through 2013. The FHFA credited the better outlook in part to a decline in seriously delinquent loans and better-than-expected results from foreclosure sales. Delays in foreclosures stemming from document woes also has pushed some defaults further into the future than previously expected, the FHFA reported.

Regulators took control of Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, in September 2008 after losses from subprime mortgages pushed them to the brink of collapse. Since then, the companies have required U.S. aid to continue buying and guaranteeing home loans while policy makers work on an overhaul of the mortgage-finance system.

Under a stock purchase agreement with the Treasury Department, the companies pay a 10 percent dividend in exchange for their taxpayer aid. Of the $170 billion the companies have drawn from their cash lifeline since 2008, about $28 billion has been returned to Treasury in the form of dividends, for a total net cost to taxpayers of about $142 billion so far.

‘What If’

For its report, FHFA had the mortgage companies model three “what-if” scenarios based on projected home values, interest rates and other factors. Without taking the dividends into account, the total cumulative draw from the Treasury lifeline would be $311 billion in the worst case, $226 billion in the middle scenario and $220 billion in the best case through 2014.

Matthew Anderson, a Treasury spokesman, declined to comment on the FHFA report. Stefanie Johnson, an FHFA spokeswoman, said the agency had no further comment.

The White House and congressional leaders are exploring ways to reduce government’s involvement in the almost $11 trillion mortgage market. In the House, Republicans have introduced a package of bills to phase out Fannie Mae and Freddie Mac while preserving some government oversight of the mortgage-backed securities market the companies now dominate.

Representative Scott Garrett, a New Jersey Republican, this week said he plans to introduce legislation to set standards on mortgage securities and replicate some Fannie Mae and Freddie Mac functions once the companies are shuttered.

House leaders have not scheduled a vote on any of the bills. The Senate has yet to take up legislation.

--Editors: Lawrence Roberts, William Ahearn

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.


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