Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Sunday, October 24, 2010

More Bailouts to Come

As everyone hopes for a turnaround in the economy, few people probably realize that more bailouts have been promised by the government and will continue to increase the country’s already huge debt.

Who’s going to get the bailouts you ask? None other than Fannie Mae and Freddie Mac, who, as of 2008, owned or guaranteed 56.8% of the U.S.'s $12 trillion mortgage market. Neither Fannie Mae nor Freddie Mac was included in the massive new package of regulations passed by Congress a few months ago. Many felt that Fannie and Freddie bore much of the blame for the “Great Recession” we found ourselves in, and were dismayed that Congress refused to include them in the legislation.

An article in the Wall Street Journal titled “Fannie, Freddie Elicit a Grim Forecast” (Saturday, Sunday October 23 -24) by Nick Timiraos, reported that “propping up Fannie Mae and Freddie Mac will cost taxpayers $154 billion under the most likely scenario for home prices, the mortgage giant’s regulator said Thursday.” The article went on to say that the cost may be higher, “nearly double the $135 billion already spent – if grimmer projections prove true and the economy slides back into recession”.

In 2008, the government took over Fannie and Freddie and promised to provide unlimited funds to keep them solvent, in turn for 10% dividends to the government. According to the article, the dividend expense itself will likely be from $67 billion to $91 billion and “will likely keep them from ever returning a profit”. And if home prices continue to drop, the government will have to cough up much more to keep Fannie and Freddie afloat.

It’s hard to imagine how Congress could ignore the inclusion of Fannie and Freddie in the new regulations recently introduced. We can only hope the economy turns around soon. If not, we’ll all be paying substantially more to bailout Fannie and Freddie.


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