Fannie, Freddie Could Cost $169 Billion to 2012

Taxpayer aid to Fannie Mae and Freddie Mac will reach $224 billion by the end of 2012, of which $55 billion will be returned in dividends to the U.S. Treasury, according to President Barack Obama’s 2012 budget.

By 2013, the government-owned mortgage companies will be profitable enough to “pay part, but not all” of their dividend payments from earnings, according to the budget released today.

The budget’s projected cost to taxpayers for rescuing Fannie Mae and Freddie Mac -- $169 billion after subtracting the dividends -- is at the low end of a range of estimates from the Federal Housing Finance Agency, the companies’ chief regulator.

The agency’s analysis, issued in October, predicted a best- case scenario of $221 billion in aid, or $142 billion after dividends, and a worst-case scenario of $363 billion, or $259 billion after dividends.

To date, the companies have cost the Treasury $130 billion, drawing about $151 billion in aid and paying back $20.2 billion in dividends.

The Treasury took Fannie Mae and Freddie Mac, which now own or guarantee more than half of U.S. residential mortgage debt, under conservatorship in 2008, promising unlimited aid to counter the companies’ losses linked to subprime mortgages. In return, the government received nearly 80 percent of the companies’ preferred shares which accrue dividends of 10 percent a year, payable to the Treasury.

Photographer: Andrew Harrer/Bloomberg

The report’s other options retain more of a government role in the mortgage market, while still ending taxpayer support for Fannie and Freddie. Close

The report’s other options retain more of a government role in the mortgage market,... Read More

Close
Open
Photographer: Andrew Harrer/Bloomberg

The report’s other options retain more of a government role in the mortgage market, while still ending taxpayer support for Fannie and Freddie.

Off Budget

The federal budget doesn’t account for the companies’ debt and obligations, which total $5.3 trillion, more than the government’s $3.7 trillion budget for 2012. The government- sponsored enterprises aren’t considered federal agencies, according to the budget.

“Although federally chartered to serve public policy purposes, the GSEs are classified as non-budgetary” because they are “intended to be privately owned and controlled” and benefit the public indirectly, according to the administration’s analysis.

Since 2008, Fannie Mae and Freddie Mac quarterly losses have fallen and a growing portion of their aid has been used to pay the dividend owed to Treasury.

Long-Term Plan

In November, Fannie Mae reported a $1.3 billion third- quarter loss and requested $2.5 billion in Treasury aid, most of which was used to make a $2.1 billion dividend payment.

Freddie Mac reported a $4.1 billion third-quarter loss, including a $1.6 billion dividend payment owed to Treasury.

The budget reiterates several goals set out by the administration on Friday, when it offered a set of options for dialing down government support for the nearly $11 trillion mortgage market.

In their report to Congress, Treasury Secretary Timothy F. Geithner and Housing and Urban Development Secretary Shaun Donovan suggested reducing the size of loans that can be guaranteed by Fannie Mae and Freddie Mac, from the current ceiling of $729,750 down to $625,500 on Oct. 1.

The administration also wants to reduce the $1.5 trillion investment portfolios of the two companies by 10 percent a year.

Congress established Washington-based Fannie Mae in 1938 and Freddie Mac of McLean, Virginia, in 1970 to increase the capital available for home lending by packaging mortgages into bonds for sale to investors. The companies insured bond buyers against losses, with an implied promise that the U.S. government would make investors whole if the system failed.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.