U.S. to Lose $400 Billion on GSEs Fannie and Freddie according Wallison

December 31, 2009 by · Leave a Comment
Filed under: Real Estate News 

No surprise should hit you if your reading this.  We have already nationalized these two institutions and instead of de-leveraging to get there asset to debt liability ratio to something more reasonable, we have used them to try and support a declining real estate markets.  Both GSEs have lowered credit standards and we have even allowed these real estate tax credits towards the down-payment which allows low credit borrowers to not have “skin” in the game with these purchases.

We are just hurting people who are saving money and waiting until they are ready to support a mortgage by trying to keep real estate at these inflated prices.  I still feel in the end, deflation in real estate will win out because we do not have the income in the market to support these prices over the long run.

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

The U.S. seized the two mortgage financiers in 2008 as the government struggled to prevent a meltdown of the financial system. The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case- Shiller home-price index.

The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

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