Taxpayers will pay a very stiff price for allowing the government to over-encourage homeownership. Early this afternoon, the Federal Housing Finance Agency released estimates that through 2013, Fannie Mae and Freddie Mac will draw between $221 billion and $363 billion from the Treasury under three different economic scenarios. Since they were taken over on September 7, 2008, Fannie Mae and Freddie Mac have drawn $148 billion. Cleaning up this mess will take well beyond 2013, so these costs could rise higher.
This conjecture from Jim Pethokoukis would be shocking if it comes to pass:
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:
Perhaps it shouldn't be when you consider Fannie and Freddie have a good chance of costing taxpayers more than the bailouts of the banks (-$7 b.), AIG ($36 b.), and GM and Chrysler ($34 b.) put together according to this Congressional Budget Office analysis of last month. In December, CBO estimated Treasury will end up spending $163 b. of taxpayer money to keep Fannie Mae and Freddie Mac afloat, and Treasury's Christmas Eve lifting of the $200 b. caps on what it can put into each gave me cause to believe the ultimate cost could be a lot larger. It all depends on a housing market rebound that hasn't happened yet.
There weren't many details available when the Treasury yesterday announced that it would ask Congress for the authority to buy Fannie Mae and Freddie Mac stock should it be necessary. Published reports like the ones in the New York Times and Washington Post didn't indicate the estimated cost but talked about it being in the billions.
There's little doubt that Congress will provide what Treasury is requesting. My question as a budget person is how it's going to be treated.