Forbes: Fannie, Freddie Could Need as Much as $126 Billion in Crisis


“[It was] the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and . . . the Revolutionary War.” – Benjamin Franklin

Fannie and Freddie have reportedly been cash-cows for the federal government who have allegedly held the quasi-governmental guarantors hostage during eight-years of government receivership.   Fannie and Freddie have returned to the Treasury over $60 billion more than they received in the bailout. But the amount they owe to the government remains outstanding.  It is likely that the tax payer is being prepped to dole out another bail-out for the profitable GSE’s that insure trusts that are empty or no longer exist.

Fannie and Freddie are antiquated dinosaurs that contributed to the foreclose melt-down.  As nothing more than guarantors for empty trusts, they routinely attempt to foreclose on homes they don’t own and loans that failed to exist years ago.  The GSE’s business model is to hire servicers to fabricate documents to create the illusion of ownership so they can foreclose.

The true GSE story is yet to be told, but why would two profitable corporations need bailouts?  Where have all the profits from the past seven years gone?  One thing is assured, the federal government couldn’t operate a worm farm even with the best worm cultivators in the world consulting.

By Joe Light

Fannie Mae and Freddie Mac could need as much as $125.8 billion in bailout money from taxpayers in a severe economic downturn, according to stress test results released Monday by their regulator.

The Federal Housing Finance Agency said that the government-controlled companies, which back nearly half of new mortgages, would need at least $49.2 billion.

The annual test, required by the Dodd-Frank Act, is likely to be used both by proponents of allowing Fannie Mae and Freddie Mac to build capital and by those who think there’s not an urgent need for the government to take that move.

 Under the terms of the companies’ bailout agreements, Fannie Mae and Freddie Mac must send nearly all of their profits to the U.S. Treasury and wind down their capital buffers until they reach zero dollars in 2018. After that point, any loss at either company would require a draw from taxpayers.

Rescue Funds

 Monday’s stress test results showed that the funds that the U.S. Treasury Department is authorized to use in a bailout are more than enough to cover the billions that Fannie Mae and Freddie Mac would likely lose in a crisis. The companies would have between $132.2 billion and $208.9 billion in available bailout money from the Treasury after the period of financial duress passed, according to FHFA.

The stress tests assumed an extreme adverse scenario, designed by the Federal Reserve, in which real U.S. gross domestic product dove 6.25 percent by the first quarter of next year, unemployment doubled to 10 percent by the third quarter of 2017 and inflation rose to 1.9 percent.

“A stress test for an entity that is not allowed to retain capital is an exercise in stupidity,” Tim Pagliara, chief executive officer of CapWealth Advisors, said in an e-mail.  “The only way you can fix it is to retain capital.”

Pagliara is also head of Investors Unite, a Fannie Mae and Freddie Mac shareholder group.

‘Serious Risk’

Fannie Mae and Freddie Mac buy mortgages from lenders, wrap them into securities and make guarantees to investors in case borrowers default. The companies have been in a conservatorship helmed by the FHFA since 2008 and received $187.5 billion in bailout money from the U.S. Treasury.

Last week, Fannie Mae reported a profit of $2.9 billion for the second quarter, while Freddie Mac reported a profit of $993 million. Freddie Mac has reported a loss in two of the past four quarters.

FHFA Director Melvin Watt in a February speech warned that the companies’ falling capital buffers could one day cause investors to doubt their guarantees of mortgage-backed securities. Such uncertainty would cause mortgage rates to go up.

“The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital,” Watt said.

6 Responses

  1. “A stress test for an entity that is not allowed to retain capital is an exercise in stupidity,” Tim Pagliara, chief executive officer of CapWealth Advisors, said in an e-mail. “The only way you can fix it is to retain capital.”

    LOL, so true

  2. Great piece Michael. You are right, most are not aware that the Yuan was added to the basket… Jamie Dimon made it clear in 2010, Chase has set its target on pillaging of the Asian rim…

    The citizens of this Country are for a rude awakening. 99.9 percent could not even tell you what the YUAN is, but they can all tell you who is going to pay for the wall! Idiots.

  3. “Somewhere on the middle of the economic scale of balance between corporate output and consumer demand lies capitalism. If either side becomes too big too fail, capitalism fails” ~Benjamin Donovan~ 2007

  4. “[It was] the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and . . . the Revolutionary War.” – Benjamin Franklin

    Hey wait… the history books tell us it was about a bunch of patriots throwing some tea into Boston Harbor. Now, you want us to believe it was about the colonies issuing its own script, which competed with the Bank of England and the ole sterling.

    Did Columbus discover America, was the federal reserve act ratified by all the states, and who shot Kennedy?

  5. Reblogged this on Deadly Clear.

  6. The US is presently under attack. It is a “Palace Coup”.

    It is a two-pronged attack against: 1) property rights; 2) the “Federal Reserve Note” as “Sovereign Currency”.

    The plan is to pass the TPP and move the criminal banking operation into the Pacific Rim and further enfranchise the Chinese Yuan (now a part of the American Reserve Banking System; albeit, a minority partner, for the time-being).

    In other words, although most Americans have no idea, the Chinese Yuan now exists as a minority partner within the wholly-fraudulent, intentionally-mislabeled, “Federal Reserve”.

    Any participant, in defense of their homes, to the rail-road job that is the US Court System, knows there is zero accountability for the criminals and the rule of Law has been abandoned to the whims of the wholly-Insolvent, Criminal Banking Industry.

    There are 1200 Trillion owed to inter-bank, criminal deals. These are “Federal Reserve Notes” owed, between banks, to criminal behaviors.

    You don’t have to believe me, Google: 1200 Trillion and Derivatives.

    These are “criminal debts” owed between criminal banks; these are not some fantasy of “Keynesian Economics”; whether “unfunded liabilities”, or equally absurd, “deficits don’t matter”.

    The banks are using every deceit they can muster to conceal they have destroyed themselves and are now re-capitalizing using corrupt government officials to cover for them.

    They attacked property rights first, through the “MERS”. It was designed, as a “shell company” to “PRETEND” to own people’s homes:

    Read p. 116 from the article, above. The author is now the chief counsel for enforcement of the CFPB, Prof. Chris Peterson.

    After the MERS came under fire as an illegitimate candidate to “own” people’s homes, the Obama restructuring of GM was kidnapped to create a second, phony, “shell company”: “Residential Capital”, or “RESCAP”.

    The MERS and RESCAP are used to counterfeit titles to American Homes.

    They were each created to conceal from the taxman the fact there isn’t one, single, legitimate “REMIC Trust”. The “Trusts” are used to conceal the true owners of the debt, from money lent, when the home was “purchased”.

    The “Trusts” have the added advantage of excluding from defrauded homeowners, any chance they may have at “Discovery”. As 3rd parties to these “Trusts”, the judges tell the homeowners it is none of their business how the “Trust” was signed and how it is operating.

    The government concealed the banks laundered drug and terror money, after those “loans” were “sold” into Fannie and Freddie.

    F&F have been cash-positive for years. The government has kidnapped their portfolios of “loans” in order to re-capitalize the banks, while the banks use forgery, fraud and counterfeit titles to place and collect “Naked Short Sale Bets” on homes the banks never owned, in the first place.

    The Pension plans were robbed to pay the loans and the drug and terror money is then brought in to be laundered.

    The pension plans (police, firemen, teachers, municipal workers, for example) paid the “loans”, in full, up-front; the “mortgage payments” over the ensuing 20 or 30 years (principal and interest, on “loans” already paid, in-full) are then used to legitimize the criminal inflows from terror and drug cartels.

    The “Naked Short Sale Bets” are “Derivatives”.

    As “Notional Derivatives”, the banks are counting on their ability to rob and counterfeit titles, defraud the courts, and collect on the short sales (foreclosures) attached to the homes they have stolen (forgery, fraud, counterfeiting).

    The banks have been robbing titles and investors to F&F for years (to say nothing of the fraudulently, dispossessed homeowners).

    The good news is: the banks have destroyed themselves through their “Insolvent” Condition. Their phony, now-worthless-as-hyper-inflationary, “Fed Notes” are the issues to fund criminal behaviors. As funds given to subsidize criminal behaviors, these fraudulent, “Fed Notes” and the debts they speak for (currency and T-bills, T-bonds, T-Notes) do not attach to the American People.

    They are the product and engine for criminal behaviors.

    The banks are using American Mortgages to launder terror and drug cartel money. Google: HSBC, Bank of America, Wells Fargo and couple the search with “terror and drug money”.

    There is no mechanism within Article 1, Section 8, that places the American People on the hook for debt-money created by a now, wholly-Insolvent, privately-owned and operated, criminal cartel.

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