Fannie Mae and Freddie Mac, the mortgage-finance companies operating under U.S. conservatorship, may need as much as $363 billion in Treasury Department aid through 2013, the Federal Housing Finance Agency said.
FHFA, which oversees the government-sponsored entities, offered the estimate as a worst-case scenario in an analysis modeled on the stress tests conducted on the nation’s biggest banks last year, the regulator said in a report released today. Aid to the two firms, which have drawn $148 billion since they were seized in 2008, could total as little as $221 billion in the event of a “strong near-term recovery,” FHFA said.
“These projections are intended to give policy makers and the public useful snapshots of potential outcomes for the taxpayer support of Fannie Mae and Freddie Mac,” FHFA Acting Director Edward J. DeMarco said in a statement released with the report. “The results reflect the potential effects of a limited set of hypothetical changes in house prices.”
Regulators took control of Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, in September 2008 after losses stemming from the subprime mortgage crisis pushed them to the brink of collapse. Since then, the two companies have used U.S. aid to buy and guarantee home loans while Washington policy makers weigh an overhaul of the mortgage-finance system.
Treasury dividends
About a third of the U.S. funding in the worst-case projection would be for dividend payments to the Treasury on its holdings of senior preferred stock in the two companies, according to the FHFA report.
Treasury Department officials said that when the cost of dividends is subtracted, the worst-case cost to taxpayers is $259 billion. Of the $148 billion drawn by the companies so far, $13 billion in dividends has been returned to Treasury.
“The Obama administration has made 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,” Jeffrey Goldstein, Treasury’s undersecretary for domestic finance, said in a statement.
Nearly 90 percent of the companies’ losses are behind them, with most attributable to loans made before the government took control, Goldstein said.
Fannie Mae and Freddie Mac funded more than 62 percent of new mortgages in the first half of this year, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland.
‘Good grasp’
The range of the FHFA’s projections “suggests the agency doesn’t have a very good grasp on the GSEs’ losses going forward,” said Guy Cecala, chief executive officer of Inside Mortgage Finance.
The Congressional Budget Office calculated last year that Fannie Mae and Freddie Mac would need $389 billion in federal subsidies through 2019. The White House Office of Management and Budget said in February that aid could total as little as $160 billion if the economy strengthens.
Other estimates are higher. Sean Egan, president of Egan- Jones Ratings Co. in Haverford, Pennsylvania, said a 20 percent loss on the companies’ loans and guarantees could lead to a $1 trillion taxpayer bailout.
