Provided they live on in their current form, ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com will need another $42 billion from taxpayers to cover anticipated losses over the next decade, according to new estimates from the Congressional Budget Office (CBO).
[IMAGE]Since the two companies were seized by the government in 2008, they have received $154 billion in financial assistance and paid back $24 billion in dividends, for a net of $130 billion.
Douglas W. Elmendorf, director of the CBO, says subsidies related to the GSEs' new business have fallen since the peak of the financial crisis, but the companies will continue to need extra funding as long as they price their mortgage guarantees below private institutions.
Wrangling over what's to become of the nation's two largest mortgage financiers continues in Washington. House lawmakers have introduced some 15 different bills aimed at speeding up their wind-down and limiting taxpayer support.
Deborah Lucas is CBO's assistant director for financial analysis. At a hearing held by the House Budget Committee this week, she told lawmakers that the government faces two basic choices: either retain the GSEs' portfolios and the responsibility for their outstand-
[COLUMN_BREAK]ing guarantees and allow both to run out as mortgages are paid off, or pay a private entity to assume the guarantee obligations and sell off the portfolios.
""Whatever model for the secondary market is ultimately adopted, the expected losses on the GSEs' existing business will largely be borne by taxpayers, because private investors would not assume those obligations without compensation,"" Lucas said.
In 2010, Fannie Mae and Freddie Mac owned or guaranteed roughly half of all outstanding mortgages in the United States, and they financed 63 percent of the new mortgages originated that year, according to the CBO's report. (Including the 23 percent of home loans insured by federal agencies such as FHA, about 86 percent of new mortgages made in 2010 carried a federal guarantee.)
""The GSEs' operating assets are valuable,"" Lucas testified. ""They could be auctioned off to investors, with the proceeds helping to offset some of the losses to taxpayers, or kept for use by a federal agency.""
In opening remarks at the hearing, Chairman Paul Ryan (R-Wisconsin) said, “The housing market is still in very fragile shape â€" no two ways about it. For the homeowners, for taxpayers, and for working families across this country, we need to put an end to the ongoing bailout of Fannie and Freddie and advance serious solutions.â€Â
But it’s precisely this fragility in the housing market that some use as the argument for a careful and measured GSE reform plan.
Ron Phipps, president of the ""National Association of Realtors"":http://www.realtors.org has spoken out for “comprehensive reform†of Fannie Mae and Freddie Mac, which he says “remain critical to ensuring mortgage liquidity.â€Â
Phipps says he’s concerned over the medley of recently proposed bill that takes a “piecemeal approach and could increase uncertainty in the housing market, which is still struggling to recover.â€Â