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CBO supports our estimate that Fannie & Freddie will cost hundreds of billions more
Howard Richman, 6/10/2011

In a May 1 American Thinker commentary (House Republican Budget would Benefit the Poor) we lauded Paul Ryan's budget plan for proposing to end the hemorrhaging of government money to Fanny Mae and Freddie Mac. We wrote:

It ends government bailouts to Fannie Mae and Freddie Mac, which have already cost the U.S. taxpayer hundreds of billions of dollars (and, with house prices continuing to fall, will likely cost hundreds of billions more).

Our estimate of hundreds of billions of dollars more is probably in the right ball park according to a CBO study. CBS News reports (True Cost of Fannie, Freddie Bailouts: $317 Billion, CBO Says):

The Congressional Budget Office (CBO) says the real cost of the federal government guaranteeing the business of failed mortgage giants Fannie Mae and Freddie Mac is $317 billion -- not the $130 billion normally claimed by the Obama administration.

In a report delivered to the House Budget Committee on June 2, the CBO said a “fair value” accounting of guaranteeing the two defunct mortgage companies – known as Government Sponsored Enterprises (GSEs) – was more than twice as high as the Office of Management and Budget had accounted for.

In other words, the CBO is estimating that the bailout of Fannie and Freddie will cost the federal government $317 billion more. The Obama administration thinks that these guarantees will cost the government $130 billion more. In our April 14 commentary in the American Thinker (House Prices in Free Fall), we put these guarantees of Fannie and Freddie and the other foolish measures to keep house prices high into perspective. We wrote:

It may soon become clear that the Federal Reserve and the federal government wasted hundreds of billions of dollars simply to delay an inevitable fall in housing prices. Economic historians may compare their policies to the pervasive price subsidies that eventually bankrupted the Soviet government.

We are still ahead of our time these days, but not by much. We predicted that additional hundreds of billions will be spent on Fannie and Freddie on May 1; CBO made a similar prediction on June 2.

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Comment by Ebano, 6/11/2011:

You've forgot to mention that all the predictions so far have been wrong. FHFA draw requests projections *Freddie (2H 2010): :
FHFA projection $7 billion
Reality $0.6 billion

*Fannie (2H 2010):
FHFA projection $17 billion
Reality $5.1 billion

I also remind you that Freddie not only didn't request any draw to Treasury in the 1Q, but injected $1.6 billion to the taxpayer because it paid $1.6 billion usurer 10% dividend to Treasury.

Response to this comment by Howard Richman, 6/11/2011:
Ebano, keep in mind that house prices are falling rapidly right now. As people's equity on their mortgages becomes negative, they tend to default. As house prices decline the amount that Fannie and Freddie can get from selling the foreclosed houses also declines.
Response to this comment by Ebano, 6/12/2011:
Talking about default, I guess you know Freddie Mac's monthly delinquency rates: latest 3.57% in April vs 4.06% a year earlier and vs 4.2% all time high on February 2010. It's a extremely ridicoulus delinquency rate in what is supposed we are, a crisis. With my two posts I've shown Freddie Mac is profitable and soud, taking into account that house prices are not falling "sharply". Also Freddie Mac has high capital ratios because the government has injected cash in exchange of Senior Preferred Shares. It's been a shadow recapitalization. I expect the government to swap Seniors for commons very soon.  




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