Thursday, October 21, 2010

Fannie, Freddie bailout cost is likely to rise
to $154 billion, agency projects

From Zachary Goldfarb of The Washington Post on Oct. 21:
The bailout of Fannie Mae and Freddie Mac is likely to cost taxpayers an additional $19 billion and may cost as much as $124 billion more if the economy starts shrinking again, according to a government projection released Thursday.

The rescue of the mortgage giants, which have helped keep the housing market alive amid economic crisis and recession, already has a price tag of $135 billion. The money went to cover losses on defaulted home loans.

The ballooning price of the Fannie and Freddie bailout comes as the Obama administration celebrates news of lower costs on other financial rescues. Administration officials are also preparing to release a plan for reforming the two companies in coming months.

In its projection Thursday, the Federal Housing Finance Agency sought to indicate how much more money the companies may need in the next three years under different economic scenarios.

In the most likely, as defined by the agency, which regulates the two companies, housing prices would decline slightly amid a modest economic recovery, and then inch upward. In this scenario, the total bailout of Fannie and Freddie would cost $19 billion more, or $154 billion.

A more optimistic projection has the housing market springing back to life sooner. In this case, the companies would need just $6 billion more, or $141 billion.

Finally, in a darker scenario, in which housing goes into another tailspin amid a second recession, they would cost $124 billion more, or $259 billion.


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