President Obama’s plan to allow underwater homeowners to refinance their mortgages is only going to further drain government resources to prop up the housing industry.
Over the next three years, Congress will be expected to pony up another $100 billion to subsidize Fannie and Freddie, bringing the total taxpayer bailout to $260 billion.
Democrats and Republicans want a smaller government role in the mortgage industry, which will lead to a reduced availability of mortgage loans at a higher price.
The AP reports: Fannie officials say losses have increased in recent quarters for two reasons: Some homeowners are paying less interest after refinancing at historically low mortgage rates; others are defaulting on their mortgages.
“While economic factors, such as falling home prices and high unemployment, produced strong headwinds for our business again in 2011, we continued to grow a very strong new book of business as we have since 2009,” said Michael J. Williams, Fannie’s president and CEO.
When property values drop, 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.