Taxpayers To Bail Out Freddie and Sallie?
From Housingpanic.com: The numbers are staggering-
They don't know it, but taxpayers stand to lose billions as the housing bubble bursts. And in a bipartisan effort to "do something" to save the housing market, President Bush and the Democratic Congress appear set to put taxpayers on the hook for billions more.
Until now, losses in the housing world have been confined to homeowners, mortgage lenders, banks and investors in toxic mortgage securities. But by virtue of the implicit federal guarantee backing mortgage giants Fannie Mae and Freddie Mac, U.S. taxpayers may be one of the largest mortgage lenders in the world - set to lose billions, like all the others.
Between them, Fannie Mae and Freddie Mac back more than $4 trillion in mortgages. If they fail, it could force an unprecedented taxpayer-funded bailout. And they are much closer to failure than most people realize.
In a recent Securities and Exchange Commission filing, Fannie noted that it backs $2.6 trillion worth of single-family home loans. Underneath this pile of debt, the company has only $42 billion of capital. If the value of mortgages backing Fannie's debt falls a few percentage points, the company's capital could be wiped out. And because of the implicit government guarantee backing Fannie's debt, American taxpayers would be on the hook for whatever debt Fannie couldn't cover.
They don't know it, but taxpayers stand to lose billions as the housing bubble bursts. And in a bipartisan effort to "do something" to save the housing market, President Bush and the Democratic Congress appear set to put taxpayers on the hook for billions more.
Until now, losses in the housing world have been confined to homeowners, mortgage lenders, banks and investors in toxic mortgage securities. But by virtue of the implicit federal guarantee backing mortgage giants Fannie Mae and Freddie Mac, U.S. taxpayers may be one of the largest mortgage lenders in the world - set to lose billions, like all the others.
Between them, Fannie Mae and Freddie Mac back more than $4 trillion in mortgages. If they fail, it could force an unprecedented taxpayer-funded bailout. And they are much closer to failure than most people realize.
In a recent Securities and Exchange Commission filing, Fannie noted that it backs $2.6 trillion worth of single-family home loans. Underneath this pile of debt, the company has only $42 billion of capital. If the value of mortgages backing Fannie's debt falls a few percentage points, the company's capital could be wiped out. And because of the implicit government guarantee backing Fannie's debt, American taxpayers would be on the hook for whatever debt Fannie couldn't cover.
Comments
Hey, no worries. Mr Paulson is addressing the issue.
.
Paulson defends 'freeze' plan
.
In a speech Monday, the Treasury Secretary said the subprime crisis raises the 'potential of a market failure.'
.
Treasury Secretary Henry Paulson used a speech Monday to defend a plan brokered by the Bush administration to "freeze" mortgage rates for some subprime borrowers and also to call on Congress to pass legislation to head off a housing crisis.....
..
.....In addition, Paulson again called on Congress to pass greater oversight of Fannie Mae and Freddie Mac, and with that an increase in the size of mortgages that Fannie Mae and Freddie Mac can purchase.
.
Fannie (FNM) and Freddie (FRE, Fortune 500) guarantee the purchase and trading of so-called "conforming" mortgages, which are those valued at $417,000 or less. Any loans above that amount are considered "jumbo" loans.
.
An increase in the conforming loan limit would make it easier and less costly for borrowers in high-cost areas to get new mortgages and refinance old ones.
.
The Administration has said it would support a temporary increase in the loan limit, but only if lawmakers pass legislation that would subject Fannie and Freddie to more stringent regulation.
.
Ever since accounting scandals at Fannie and Freddie came to light in 2003, lawmakers have been debating how to reform the two agencies, which are considered government-sponsored enterprises (GSEs). That is, while they remain publicly traded companies and are not funded by the government, there is an implicit understanding that should they falter, the government would feel pressure to help out.