Fannie and Freddie have reportedly been cash-cows for the federal government who have allegedly held the quasi-governmental guarantors hostage during eight-years of government receivership. Fannie and Freddie have returned to the Treasury over $60 billion more than they received in the bailout. But the amount they owe to the government remains outstanding. It is likely that the tax payer is being prepped to dole out another bail-out for the profitable GSE’s that insure trusts that are empty or no longer exist.
Fannie and Freddie are antiquated dinosaurs that contributed to the foreclose melt-down. As nothing more than guarantors for empty trusts, they routinely attempt to foreclose on homes they don’t own and loans that failed to exist years ago. The GSE’s business model is to hire servicers to fabricate documents to create the illusion of ownership so they can foreclose.
The true GSE story is yet to be told, but why would two profitable corporations need bailouts? Where have all the profits from the past seven years gone? One thing is assured, the federal government couldn’t operate a worm farm even with the best worm cultivators in the world consulting.
By Joe Light
Fannie Mae and Freddie Mac could need as much as $125.8 billion in bailout money from taxpayers in a severe economic downturn, according to stress test results released Monday by their regulator.
The Federal Housing Finance Agency said that the government-controlled companies, which back nearly half of new mortgages, would need at least $49.2 billion.
The annual test, required by the Dodd-Frank Act, is likely to be used both by proponents of allowing Fannie Mae and Freddie Mac to build capital and by those who think there’s not an urgent need for the government to take that move.
The stress tests assumed an extreme adverse scenario, designed by the Federal Reserve, in which real U.S. gross domestic product dove 6.25 percent by the first quarter of next year, unemployment doubled to 10 percent by the third quarter of 2017 and inflation rose to 1.9 percent.
“A stress test for an entity that is not allowed to retain capital is an exercise in stupidity,” Tim Pagliara, chief executive officer of CapWealth Advisors, said in an e-mail. “The only way you can fix it is to retain capital.”
Pagliara is also head of Investors Unite, a Fannie Mae and Freddie Mac shareholder group.
Fannie Mae and Freddie Mac buy mortgages from lenders, wrap them into securities and make guarantees to investors in case borrowers default. The companies have been in a conservatorship helmed by the FHFA since 2008 and received $187.5 billion in bailout money from the U.S. Treasury.
Last week, Fannie Mae reported a profit of $2.9 billion for the second quarter, while Freddie Mac reported a profit of $993 million. Freddie Mac has reported a loss in two of the past four quarters.
FHFA Director Melvin Watt in a February speech warned that the companies’ falling capital buffers could one day cause investors to doubt their guarantees of mortgage-backed securities. Such uncertainty would cause mortgage rates to go up.
“The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital,” Watt said.