Fannie, Freddie will run out of money by Jan. 1, 2018

by Ryan Smith19 Aug 2016
Fannie Mae and Freddie Mac will run out of money on Jan. 1, 2018, leaving any losses on the shoulders of taxpayers, according to a Bloomberg report.

The two government-sponsored enterprises have already teetered on the brink of collapse; in 2008, they were given a $187.5 billion bailout – which they have since repaid – by the federal government. And while few predict another collapse of that magnitude, little has been done to reform the GSEs. Earlier this month, the Federal Housing Finance Agency said Fannie and Freddie could need another bailout – to the tune of $126 billion – if the economy were to take another nosedive, Bloomberg reported.

While Fannie and Freddie have more than repaid their bailout money – they’ve sent the Treasury $251 billion in dividends over the years – they’re still sending their profits to the government rather than retaining them as operating capital. FHFA officials say that the arrangement makes at least a small bailout inevitable, Bloomberg reported.

“The most serious risk, and the one that has the most potential for escalating in the future, is the enterprises’ lack of capital,” FHFA Director Mel Watt said in a speech on February.

And it seems no one knows what to do with the GSEs. Republicans want to kill them, saying Fannie and Freddie represent a “corrupt business model.”

“I’m concerned that we exit this situation without fixing the original problem,” Rep. Ed Royce (R-Calif.) told Bloomberg. “The status quo of a nationalized mortgage market is unsustainable for taxpayers.” Royce said he planned to introduce a bill in the near future that would require the GSEs to transfer more risk to the private market.

Some Democrats, meanwhile, have toyed with the idea of merging them into one government-owned corporation, according to Bloomberg. Others have suggested turning them into “mortgage utilities” with capped rates of return. And neither Hillary Clinton nor Donald Trump have really dealt with the issue at all.

And others think all reform proposals are doomed to fail. John Taylor, head of the National Community Reinvestment Coalition, said the GSEs should be allowed to build capital and released from government conservatorship. He told Bloomberg that think-tank libraries “are filled with all these treatises with proposals from a year to 40 years ago that are simply gathering dust.” The latest reform proposals, he said, are likely “going to end up in the proverbial stockpile.”
 

COMMENTS

  • by Jim | 8/19/2016 11:36:24 AM

    The stupidity of our politicians is beyond amazing. They pushed reckless behavior, they appointed reckless bureaucrats, and they refused to do their legal duties of oversite...and they continue to blame everyone else.

    Let Fannie and Freddie keep their profits now. What the politicians are doing now should be illegal.

    Let them keep their profits and let them go free to operate.

  • by DML | 8/19/2016 5:36:09 PM

    Understand the need during the recession to repay but we are far beyond the time limit to when Fannie and Freddie can go back to being self-sustaining entities. We are not a Socialist model, doesn't work in our country. They need to retain profits instead of letting politicians try to dole out these dividends to gerrymandering interest groups that fit their needs!

  • by truthwillsaveus | 8/20/2016 2:53:38 AM

    How a massive part if the US economy can experience a blatant conspiratorial fraudulent constitution-violating expropriation in broad daylight and with NO public outcry or media attention is mystifying to me.The truth must come out and justice must be done to save affordable mortgages and property rights in this country.

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