Fannie, Freddie bailout could hit $363 billion

The total cost of bailing out Fannie Mae and Freddie Mac
could run up to as much as $363 billion under a projection released Thursday by a government
regulator.

The report from the Federal Housing Finance Agency said the
two government-backed mortgage providers could draw down between $221 billion
and $363 billion from the Treasury Department through 2013, depending on the
severity of losses in the housing market.

That would double the current government investment of $148
billion. Fannie and Freddie, which have been in conservatorship since the
financial crisis of 2008, have a stake in most of the country’s mortgages.

The figures are being released as the Obama administration
deals with new questions about foreclosure proceedings by banks, which might have
been based on faulty paperwork. Democrats in Congress, including Senate Majority
Leader Harry Reid (D-Nev.), have suggested that a moratorium on foreclosures should
be put in place.

The dire projections also come less than two weeks before an
election in which President Obama’s party appears poised to lose dozens of
House seats and possibly the Democratic majority in the lower chamber. Many voters have expressed
anger over government spending and the bailouts of banks, Fannie and Freddie
and insurer AIG after the financial crisis.

FHFA Acting Director Edward J. DeMarco emphasized the
report is not a prediction, but projections intended to provide a range of what
the total costs for Fannie and Freddie could be.

“These projections are intended to give policymakers and the
public useful snapshots of potential outcomes for the taxpayer support of
Fannie Mae and Freddie Mac,” DeMarco said in a statement. “These are not
predictions; the results reflect the potential effects of a limited set of
hypothetical changes in house prices, a key variable driving credit losses for
the Enterprises.”

The drawdowns from Treasury reflect further losses Fannie
and Freddie could take on their pre-conservatorship mortgage business.

However, much of the money borrowed by Fannie and Freddie
could be returned to the government in the form of a 10 percent dividend paid
by the two entities.

The report notes that dividends paid to Treasury by Fannie
and Freddie for the financial help will make up a larger portion of the draws
as the help is provided. If those divided payments on preferred stock in Fannie
and Freddie held by the government were excluded, losses would range from $142
billion to $259 billion.