The 259 Million Dollar Bailout of Fannie Mae and Freddie Mac
It looks like a major fiasco involving two well established mortgage giants Freddie Mac and Fannie Mae may wind up costing the American people nearly 259 million dollars. That is twice what was thought to be the original cost. It has been discovered that the 135 million dollars originally calculated was well off this latest figure given. If the housing market does not remain flat then even more money will have to be shelled out on top of the $148 billion already paid to keep Fannie and Freddie above water. They, in return, have paid back a mere 13 billion so far.
Should the economy start to change rapidly that will change this scenario very quickly. The two harried companies could be in big trouble if they have difficulty collecting money on late foreclosures. This will force tax payers to step in and provide much needed aid to both companies. These figures released today were the first ones the Federal Housing Financing Agency projected could happen if the current downtrend continues as is predicted.
The cause of all this paranoia is that the two giants have been crushed by losses on investors they once backed, and now that housing improprieties have sky rocketed, the sky is about to fall in unless they receive assistance in a hurry. Mark Zhandi who is a chief analyst at Moody’s says, “Should the market unravel in the next couple of quarters, then the costs will mount very rapidly.”
The worst case scenario has U.S. taxpayers worried that the economy will take a big nose dive and that they will head for a recession and another twenty-four percent drops out of the bottom of the barrel as early 2012 or 2013. This could be the end of mortgage mega giants Fannie Mae and Freddie Mac.
When you consider that the Agency’s numbers bring into consideration the percentage and dividends the two moguls will already have to pay back which is already astronomical this year, does the 259 million become an unrealistic a number? Original predictions had already calculated they would payback 200 million or more at 10% per year, when the feds took them both over in 2008. The latest estimates given by most analysts, is putting it at 363 billion by 2013. But regardless of what figure you use, how did we ever get to these figures to begin with?
Since these figures came out, last year’s car bailout which cost a measly 50 billion after predictions of 86 billion by analysts still seems meager compared to what the U.S is experiencing today. Considering it only cost the tax payers 17 billion at latest count, smiles can be seen all around by those who escaped.
Compare that to the American International Group bailout of 2008 where the original 70 billion dollar investment was coupled with a 60 billion credit line and a 52.5 billion to purchase mortgage based assets, which in all ended up costing everyone 182.5 billion when the smoke had cleared. Any bailout so far awarded will be small compared to where this one will finally end up.