Next Fannie and Freddie bailout is bound to be costlier and stealthier
By Joel Griffith, opinion contributor — 12/02/19 12:00 PM EST As the housing bubble burst in 2008, mortgage giants Fannie Mae and Freddie Mac careened towards insolvency. Rather than let them go under, Washington placed both these government sponsored enterprises under conservatorship and provided a series of generous bailouts. Now private shareholders eagerly anticipate an emergence from conservatorship.
But first, Fannie and Freddie must repay taxpayers for these bailouts and rebuild their reserves against future losses, a task requiring $400 billion in capital. The mortgage giants understandably want to get out from under those obligations, so now they are seeking two more gifts from Uncle Sam. First, debt forgiveness or the “liquidation preference†and second, a rollback of dividend requirements. These stealth bailout proposals are potentially larger than those of the past decade. That is saying a lot.
In 2009, the Treasury gave both Fannie and Freddie open credit lines of $200 billion to cover possible losses. The Treasury then announced that any funds needed in the next three years would not count against these caps. The Treasury and the Federal Reserve also purchased trillions of dollars of their obligations, staving off further losses that would have required even more bailouts. To compensate taxpayers for the bailouts, Fannie and Freddie issued special preferred stock to the Treasury.
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https://thehill.com/opinion/finance/472592-next-fannie-and-freddie-bailout-is-bound-to-be-costlier-and-stealthier
