So far taxpayers have paid out about $170 billion to subsidize Fannie Mae and Freddie Mac. That works out to about $1300 per American. Taxpayers are on the hook for at least another $100 billion in aid over the next three years.
This is money that is highly unlikely to be repaid to the taxpayer.
This is the high cost of government subsidizing activities such as home buying that need no government subsidy.
The housing market has slowly begun to improve, but has a long way to go before it’s healthy. Many homeowners are still defaulting on their mortgages. Unemployment remains high at 8.3 percent. And the percentage of those who are late by 90 days or more on their monthly mortgage payments has been rising.
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default, and then sell them to investors around the world. When property values drop, more homeowners default, either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must pay for the losses.
Fewer foreclosures and delays in foreclosure processing because of a 16-month government investigation into mortgage lending practices had also reduced the companies’ projected losses. But that government probe ended last month with a $25 billion settlement, which might cause foreclosure rates to rise.