Federal bailout for Fannie, Freddie could more than double, regulator says $215 billion

Editor’s Note: All this because they won’t face reality and insist on maintaining the illusion that the “loan” transactions were anything but empty promises based on misrepresentations. There is another way out of this without letting the Wall Street socialists continue to dine at the taxpayer trough. To do that we have to put aside our agendas and adopt just one: fix the problem.

Of course we could keep doing what we are doing and have chaos in the streets, in the marketplace and in the world stage. We already know the emperor has no clothes — stop pretending it’s real!!

Breaking News Alert: Federal bailout for Fannie, Freddie could more than double, regulator says
October 21, 2010 10:12:21 AM
—————————————-

The federal bailout for Fannie Mae and Freddie Mac could more than
double in size during the next three years, according to projections
from the Federal Housing Finance Agency.

The federally controlled mortgage giants will likely need at
least another $73 billion and perhaps as much $215 billion from
taxpayers in the next three years to meet their financial obligations.

Fannie, Freddie bailout could nearly double in size

Video
Oct. 18 (Bloomberg) — Brian Gardner, senior vice president for Washington research at Keefe Bruyette & Woods Inc., talks about implications of a Republican-controlled Congress and the prospects for overhauling Fannie Mae and Freddie Mac. Gardner speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

Washington Post Staff Writer
Thursday, October 21, 2010; 1:53 PM

The federal bailout for Fannie Mae and Freddie Mac could nearly double in size during the next three years, according to projections from the companies’ federal regulator.

Fannie and Freddie, the federally controlled mortgage finance giants, will need as much as $215 billion more from taxpayers in the next three years to meet their financial obligations, the Federal Housing Finance Agency said Thursday, but much of that money would automatically be returned to the government.

The growing taxpayer infusions will cover losses Fannie and Freddie suffer on home loans, as well as payments the companies must make to the U.S. Treasury in exchange for a federal guarantee to provide cash to keep the companies solvent.

Over time, the majority of funds flowing to Fannie and Freddie from taxpayers will go to pay that dividend. As a result, most of the additional funds that go to the companies from taxpayers will ultimately be paid back. An Obama administration official said this arrangement is not being reconsidered at this time.

To date, the Treasury has injected $148 billion into Fannie and Freddie, $13 billion of which has been returned to the government. Under the worst case, in which the country enters a second recession, the total infusion would be $363 billion in three years. In this situation, after dividends are paid back to the Treasury, the total cost of the bailout would be $259 billion.

Under a more moderate possibility, in which housing prices decline a little, stay flat for a while and then slowly rise, the total taxpayer bailout would be $238 billion. After dividends are paid back, the total cost would be $154 billion.

The projections of additional bailouts for Fannie and Freddie are in sharp contrast to recent discussions by the Obama administration about how the bank rescue known as the Troubled Asset Relief Program, originally valued at $700 billion, is expected to cost taxpayers less than a tenth of that.

Fannie and Freddie were seized by their federal regulator in September 2008 as the crisis in the housing market threatened to topple them. The Bush administration pledged $200 billion to keep them solvent. Early on, the Obama administration doubled that number to $400 billion, then late last year made a pledge of unlimited support.

The companies play a central role in the housing market, buying or guaranteeing most home loans. With the collapse of the private market for home loans, they have been essential to keeping interest rates low and the housing market from declining more. But they also are deeply controversial and were one of the causes of the financial crisis. The Obama administration is set to release a proposal to overhaul or replace them in January. That decision ultimately will be made by the administration in concert with Congress.

“In the most likely economic scenario, nearly 90 percent of the losses at Fannie Mae and Freddie Mac are already behind us, and that almost all of those losses are attributable to mortgages that were already on those businesses’ books prior to” the government seizing them, said Jeffrey Goldstein, Treasury undersecretary for domestic finance, in a statement. “But that news should not distract us from the pressing need for reform so that taxpayers aren’t put on the hook in the future. From the beginning, 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.”

An administration official said the dividend – 10 percent – is a fair price for the companies to pay in exchange for taxpayer support and would be reexamined only in the context of an overall revamp of housing finance policy next year.

The Federal Housing Finance Agency made the projections based on stress tests similar to those that were applied to the largest banks last year. In the best case, housing prices would start to recover immediately and there would be minimal additional costs to taxpayers.

“These projections are intended to give policymakers and the public useful snapshots of potential outcomes for the taxpayer support of Fannie Mae and Freddie Mac,” said FHFA acting Director Edward J. DeMarco. “These are not predictions; the results reflect the potential effects of a limited set of hypothetical changes in house prices, a key variable driving credit losses for the enterprises.”

18 Responses

  1. Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness.

  2. Fannie and freddie and mers go figure.

  3. MERS holds no interest in any mortgage or note… so why are they issuing discharge of mortgages (en masse?)

    In this instance MERS discharges the mortgage yet does not appear anywhere on the complaint.

    Indymac states they are the “only” known party of interest. YOU DON’T SAY!!!

    [scribd id=39056847 key=key-iybdkd7lg63bipjmqm8 mode=list]

  4. Darwin’s Law of Maladaptive Corporate Behavior
    (or, why bailouts are nearly always a terrible idea)

    http://www.ritholtz.com/blog/2010/10/darwins-corporate-survival/

    [youtube=http://www.youtube.com/watch?v=cXuK28dERzI&fs=1&hl=en_US&color1=0x5d1719&color2=0xcd311b]

  5. Darwin’s Law of Maladaptive Corporate Behavior
    (or, why bailouts are nearly always a terrible idea)

    http://www.ritholtz.com/blog/2010/10/darwins-corporate-survival/

    Why Foreclosure Fraud Is So Dangerous to Property Rights

    http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/

  6. WHERE ARE OUR MARBLES?

    I really can’t believe what im seeing , we lost our pair of “marbles” long time ago , damn us for being catle and not fisically do something about all this mess, “we, the people “can go out and protest .. millions of us ,they are powerless without us, the should fear us , not the other way around, they have planted fear in our hearts .We are taking all this crap from them and all we are doing is talking and trying to beat them in a system of corruption driven by Judges who JUST DONT GET IT.

    Lets talk about France for example,there is an ugly fight happening right now overthere. That fight is about the proposal by the French government to raise the normal retirement age for public pensions from 65 to 67 and early reduced pensions from age 60 to 62, which the National Assamble has approved, PEOPLE …..IS ONLY 2 YEARS WHAT IS THE WORST IT CAN HAPPEN? well…. the private and the public sector disagree about the proposal, actually the whole contry has gone NUTS and to demostrate who is in charge they have decided to protest against it, what is it they did you ask? , i thought you would never ask !

    1- Cancellation of as many as 50% of flights at airports
    2- Half the country’s long-distance trains were cancelled
    3- A prolonged strike by garbage collectors led to a build-up of trash around the port of Marseille.
    4- Workers were forcing it to shut down all six of its refineries in France — half the total number in the country.
    5- Etc….

    Damn this people take it so serious! BUT THEY ARE RIGHT in taking it so serious. They are waiving their rights by not protesting

    The moment we let our guard down with the Gov and Wallstreet, we are doomed.

    BUT YOU KNOW WHAT, WE ARE NOT IN FRANCE, WE CAN TAKE ALL THIS CRAP AND THEN SOME.

    Unless people overflow the streets and the Gov …along with accomplices, see for themselves that we are not playing, they are not going to stop THIS SYSTEMIC FRAUD BY THEM !. not us

    They would still say that there is no systemic fraud in our mortgage industry, Obama said that is only some paper errors that should be corrected ,and the guy from HUD saying that he ” has not found any problems in MERS and everything was in order”……….! earth swallow me here in USA and spit me out in China.

    !!!!!!!!!!!!!!….JUSTICE IS TRULY BLIND….. !!!!!!!!!!!!!!!!!

  7. FHFA: Foreclosuregate And Scams: It’s (Maybe) 1/2 Over

    This is truly unbelievable – FHFA now says that we are only 1/2 over on the money that Fannie and Freddie will absorb from the taxpayer as a result of all the scams and frauds?

    Washington, DC – The Federal Housing Finance Agency (FHFA) today released projections of the financial performance of Fannie Mae and Freddie Mac (the Enterprises) including potential draws under the Preferred Stock Purchase Agreements (PSPAs) with the U.S. Department of the Treasury. To date, the Enterprises have drawn $148 billion from the Treasury Department under the terms of the PSPAs. Under the three scenarios used in the projections, cumulative Enterprise draws range from $221 billion to $363 billion through 2013.

    Here’s the problem – if you read the report there is no recognition of the root issues that underlie these securities – the possibility that they own nothing.

    But that’s not the only screw job in the “projections” – take a look here:

    Notice what’s going on here – all of the aggravating or mitigating factors are set to be the best scenario forward.

    This is called “rigging the game”, and in this case it results in dramatically lower loss estimates than will actually occur under any except the “rosy” scenario.

    If we get a spread blow-out, if we get a security price deflation (like, for instance, if all these MBS have nothing in them), if we have rising interest rates (due to, for example, QE blowing up in Bernanke’s face), if we have retained portfolio problems – then the losses will be dramatically – perhaps outrageously – higher than projected.

    This is ridiculously-understated in terms of potential exposure – but what else do you expect out of Washington DC? Truth? Oh hell no – and when the bad scenario shows up, we’ll be told “nobody could have seen that coming” – just like we always are.

    from http://www.market-ticker.org

    as well as the previous post, sorry for not including this foot note there

  8. The Sharks, They Be A-Swimmin’

    Huffpo published yesterday afternoon a reasonably-accurate exposition on the Foreclosuregate losses that could accrue to the banking system, and outlines the primary risk I’ve been harping on since 2007 – misrepresentation (or worse) in the loans in the pools:

    But this is just exposure to Fannie and Freddie. The private sector is angry about all kinds of things–from wronged borrowers to deceived investors. Investors are already organizing against both mortgage servicers — for improperly handling troubled loans — and against investment banks — for selling them garbage. They aren’t just angry about fraudulent foreclosures — evidence is mounting that mortgage servicers can’t even handle the profits from mortgages correctly, and aren’t sending investors reliable, verifiable payments.

    Yep. Or worse, selling them nothing.

    Bill Frey, who runs the hedge fund Greenwich Capital, has organized a massive clearinghouse of mortgage investors for the express purpose of bringing lawsuits against big banks that issued bogus mortgage-backed securities. He told me this afternoon that he’s about to move: In the next couple of weeks Greenwich and other investors will bring big lawsuits against major banks.

    Will these combined troubles be enough to sink any big banks? If investors can win a couple of lawsuits, easily.

    The bar is high on these suits, but most of the hurdle is procedural. You need 25% of the MBS pool to have standing – that’s blocked most of these up until now, and the banks (cleverly) structured most of the notes so that getting to the 25% is tough. That is, the “Senior” portions of the offering typically encompass about 80% of the total, just enough so that until and unless those people take losses they have a strong DISincentive to participate in a suit.

    But if they feel the heat of risk, this all changes immediately, and instead of having 80% of the investors on your side the flip to the other side of the equation becomes equally dramatic and immediate.

    That’s all it will take – for the overcollateralization offered by the junior tranches to be exhausted, and the senior portions to start getting whacked on with unrecoverable losses – not “mark-to-market” losses, but permanent impairments due to parts of the pool being found to be contaminated beyond that which overcollateralization can protect against.

    With loss severities running around 50%, that won’t be tough to do if 1/3rd or more of the pools are junk – and the testimony from Clayton at the FCIC hearing strongly suggests that to be the case.

    The banks appear to have relied on the premise that they could get away with this by structuring securities such that all of the junior tranches could get wiped out and yet it would not produce enough angry noteholders to meet standing requirements. That’s nice of them, isn’t it?

    But greed ultimately will nail these guys, because it also appears they didn’t stop short of the line where the senior holders were “safe.” That line, once crossed, will immediately lead to essentially all of the noteholders being both willing and able to sue.

    What’s worse is that if the holder is a pension fund it has no choice but to sue once value is impaired, because the pension fund manager has no discretion – he is a fiduciary for the pension beneficiaries and can potentially be held personally liable if he does not discharge that duty.

    The premise among the market participants that has produced a big shrug in stock prices thus far is that since robbery and fraud has become Wall Street’s “greatest and most profitable product” in the last ten years that they will be able to continue, with help from Washington DC, and avoid the liability for their actions.

    I don’t think so – not when the biggest constituency that is getting hosed here are pension funds, including union pension funds. Those folks not only want to sue once they can establish standing and have an unjust loss they have to sue.

    I predict some truly ugly surprises in the offing, and soon.

  9. Where is Warren Buffet the proud share holder of Wells Fargo?

    The richest or almost richest man in the world is allowing his company to illegally foreclose on American Citizen

    is Warren Buffet responible for this economic Genocide

  10. Isn’t it strange how Fred and his sister Fannie aren’t able to list the number on their balance sheet just now. The one under the “loss” column. This appears to indicate the liability numbers are a lot higher than they are willing to talk about. They are insolvent, and apparently the instigators of the fraud, don’t own any promissory notes, only who’s only claim is the deed of trust that is always a copy from a folder at the title company.
    Instead of seizing any entity that chose to resort to fraud to hide their losses, our government pays them to continue their operations?
    and Mo “Godzilla” Mafioso, walks.
    We would have to be stupid to think we have a government for the people. We lost representation “of” the people, a long time ago.

  11. No fan of Freddie/Fannie – but – was there insurance fraud against the entities themselves? Were they just stupid – or did the executives participate?? Waiting. Remember the suicide – what did he know??? Hey – the poor guy should not have done that – no one was going to go after him. Much – we do not know.

  12. All the big players are busy fighting each other-it’s our turn to sit back watch as this fiasco unfolds.

    We’ve seen this movie so many times already, we can practically recite the ending: The Too Big To Fail banks are once again in the middle of another crisis—another mortgage crisis—that’s breaking like a bad rash. And this new scandal has so many moving parts!

    Robo-signings!—Foreclosure mills!—Forged documents!—Attorneys General huffing and puffing!—Too Big To Fail banks tottering!—Foreclosures suspended!—Bond holders freaking out!—Credit default swaps shooting the moon!—

    Aaaaaahhhh!!!!! Again.

    http://www.zerohedge.com/article/gonzalo-lira-mulligan-mortgages%E2%80%94-banks-only-way-out

  13. I used to say Bank of Amerifraud

    now it is

    United States of Amerifraud

    Where Fraud is not a crime.

  14. Soooo… As all these $ BILLIONS in “life support” funding for Fannie and Freddie continues unabated from Uncle Sam, TO WHOM, TO WHERE is all this taxpayer money current going and WHY?

    What a ridiculous PONZI SCHEME. Instead of going to jail, the perps continue to move to higher and higher positions of power in government. And, mark my words, a republican takeover of Congress will also mean nothing is done about Fannie, Freddie and whatever it was that they have been up to for the past decade.

  15. Why is this the only Country in the world with this banking Fraud?

  16. Shut off the lights!!

    We can’t keep printing an endless supply of Bailouts!

  17. I agree. FIX THE PROBLEM !! Makes too much sense, though.

    No money today in fixing problems. More money in keeping problems active. Just pass the problems around from one entity to the next, disguise them over and over again, and try to make people “think” the problems are going away or being fixed.

    It’s the old game of “Musical Chairs.”

    While they busily create more committees to analyze the problems and the alleged solutions, the public mistakenly thinks there’s a recovery going on. Just in time for the old problems to pop up with new hats on.

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