Fannie, Freddie rescue could cost $25B

[AlphaCentauri]

Source: CNN

NEW YORK (CNNMoney.com) -- The Congressional Budget Office on Tuesday estimated that a government plan to stabilize mortgage giants Fannie Mae and Freddie Mac could cost government coffers an average of $25 billion.

The CBO said it thinks there is probably a better than 50% chance that the Treasury would not need to step in. In addition, it said there is nearly a 5% chance that Freddie and Fannie's losses would cost the government $100 billion.

CBO's $25 billion cost estimate is an average based on "the path of housing prices in the next several months." They considered three scenarios: prices stabilize, grow modestly or decline steeply.

The CBO report came out one day before the House is expected to debate and vote on a rescue plan proposed by Treasury Secretary Henry Paulson last week. Paulson asked Congress to give the Treasury broad, but temporary powers intended to provide a liquidity and capital "backstop" for the two government-sponsored enterprises (GSEs).



Read more: http://money.cnn.com/2008/07/22/news/economy/cbo_gse_rescue_costestim/

---

Privatize profits and socialize losses

[sinkingfeeling]

1. Collect the back taxes and penalties from those millionaires stashing their money in foreign

countries and fine UBS for assisting them. That will more than 'bailout' Fannie Mae and Freddie Mac. Estimated loss revenue from the tax cheats was over $100 billion a year.

http://www.businessweek.com/ap/financialnews/D91VAHM80.htm

[Trillo]

14. What is the precise nature of the connection between

Fannie and Freddie and the tax shelters besides rich people avoiding taxes? Sure, many of us think it's great that criminals have been uncovered, but I fail to see the 'connect-the-dots' to the housing problem and the sub-prime parasitism.

Please note I'm not saying there's no connection, just that I don't see it, except in the most general, long-term budgetary ways.

Why wouldn't any increase in revenues from these newly-discovered tax cheats go to pay for new military toys instead of helping people with housing?

[sinkingfeeling]

18. It probably will go to the military. However, the 'bailout' of $25 billion isn't a lot when

compared to how much individual tax cheats cost us every year.

[saigon68]

35. Good thing all the "Old People" have all their medicine now

</sarcasm>

[Trillo]

2. How many homes could $25 billion buy

(I'm guessing about 100,000 homes could be bought outright), and how many loan payments, presumably a much larger number than buy outright, could $25 billion buy?

How many mortgages are in or near default? Would it be less costly to help the citizens in trouble directly? Presumably, when doing so, there would be no overinflated CEO salaries to pay, though CEOs and executives and others in the banking sector would still get the benefit of trickle up, as they always do (bosses make a portion of workers' income, and their bosses a portion of everyone below them).

If congress decides to infuse $25 Billion to the mortgage banks instead of to those citizens losing homes, hopefully they will nationalize those corporate assets so the citizens get the future benefit of profits during "good times".

[sinkingfeeling]

3. Citizens have been reaping the benefits of Fannie Mae for decades. Please read the following article

http://www.newsweek.com/id/146257

"Fannie Mae and Freddie Mac didn't make subprime loans, although they do have some exposure to subprime debt through assets they purchased. Rather, they make loans to people who make down payments and who buy houses under a certain price (the maximum loan last year was $417,000). As a result, the companies avoided funding lots of mortgages in expensive, bubbly markets. In the fourth quarter of 2007, the delinquency rates for mortgages on single-family homes were 0.65 percent for Freddie Mac and 0.98 percent for Fannie Mae."

[Trillo]

7. I note you didn't answer my questions.

Here's the critical one. How many homes are in or near default?

From your article:

Fannie and Freddie borrow money in the public markets at rates somewhere between what the government pays and what a good corporate borrower would. Over the years, economists have attempted to quantify the government-sponsored enterprise's advantage—and how much of that advantage it passes on to borrowers in the form of lower costs. On its Web site, Freddie Mac quotes the Office of Management Budget thus: "ortgage rates are 25 – 50 basis points lower because Fannie Mae and Freddie Mac exist in the form and size they do." (Twenty-five to 50 basis points is one-quarter to one-half a point, in layman's terms.) Freddie goes on to say that "because the secondary mortgage market saves homebuyers up to one half percent on their mortgage, borrowers nationwide save an average of nearly $23.5 billion annually."

It seems to me this talks around the most major point, which is the housing market and the cost of individual homes: how much does the existence of Fannie and Freddie inflate housing prices? In other words, is the reason why minimum wage isn't enough to ever buy a home or condominium because some entity has manipulated the prices of homes over decades so that slick talkers with low ethical standards and with fancy initials behind their names can make incomes far in excess of minimum wage while the minimum-wage earners only choice is to rent or be homeless?

I'd be a lot less inflexible if those with high-school degrees, approximately 75% of the population, qualified for a LIVING WAGE instead of a minimum wage (and if CPI hadn't been understated for many years now, which would increase Social Security payments). A LIVING WAGE pays back to those former compulsed students compensation for the time they spent learning lessons from those who were supposed to teach us how to thrive, but it seems, ended up teaching us only how to barely eek out enough to eat and be parasitized by the wealthier.

It appears that housing prices are going down. That's good for people who don't have homes. How many homeless are there now? How many homeless are there that have jobs?

One fix to the homeless issue is to ratchet down the cost of homes to a point of mass affordability. Another way is to raise the minimum wage to LIVING WAGE levels, so that anyone who has a job and a HS diploma (which is compulsory after all) is making near $25.00 per hour.

Since all we seem to get are small increases in minimum wage (Pelosi got a bigger than small minimum-wage increase, but it's still nowhere near living wage levels), then the only other "market solution" to high housing costs is to let them fall to a new equilibrium point.

Any other solution under discussion is simply putting corporate welfare lipstick on a pig, which just gives us more of the same deception that we've had in the past.

[sinkingfeeling]

10. For those held by Fannie Mae, less than 1% (see quote in my first post).

However, some lenders (Citibank, Wachovia, Wells Fargo, etc.) have all taken $billions in hits due to the mortgage crisis.

Fannie Mae and Freddie Mac have REDUCED the cost of homeownership by supplying lower interest rate mortgages for decades. There's a huge difference in the monthly payment if the interest rate is a half percent lower. This allows more people to buy homes. These GSEs are also tasked with making the same loan available to anyone without discrimination and for supplying capital in areas where it would be next to impossible to get a loan.

http://www.hud.gov/offices/hsg/gse/gse.cfm


"In the GSE Act, Congress mandated that the GSEs devote a percentage of their business to three specific affordable housing goals (the housing goal or housing goals) each year. These housing goals are:

Low- and Moderate-Income Housing Goal: Targets families with incomes at or below the area median income. ("Area median income" is defined as the median income of the metropolitan area, or for properties outside of metropolitan areas, the median income of the county or the statewide nonmetropolitan area, whichever is greater.);


Special Affordable Housing Goal: Targets very low income families (at or below 60% of area median income), and low-income families in low-income areas (at or below 80% of area median income); and


Underserved Areas Housing Goal: Targets families living in low-income census tracts or in low- or middle-income census tracts with high minority populations."

Edited: One other point. Busting the housing price bubble in certain areas like California and Nevada may seem like a good thing. And of the course of time, I would agree. But millions of current home owners are losing equity in their homes, thereby restricting their ability to pay for college educations and even their monthly bills. That contributes to the overall net worth of millions of people in this country. Losing that isn't good.

[Trillo]

12. 1% of what number of homes (not market value)?

http://en.wikipedia.org/wiki/Federal_Home_Loan_Mortgage_Corporation

History

From 1938 to 1968, the secondary mortgage market in the United States was monopolized by the Federal National Mortgage Association (Fannie Mae), which was a government agency during that period. In 1968, to help balance the federal budget, part of Fannie Mae was converted to a private corporation. To provide competition in the secondary mortgage market, and to end Fannie Mae's monopoly, Congress chartered Freddie Mac as a private corporation.

While its true that Wikipedia sometimes is wrong, both organizations are now "private corporations" according to that paragraph.

Regarding your points about low income and moderate income housing assistance, the final test of any of those ideas is where the pedal meets the metal. IOW, if those programs actually worked, they why did homelessness swell in the 1980s, and continue to be the big problem that it is? If those programs worked, presumably there'd be very few homeless. As it is, the homeless (very low income) have no places they can call "home". So it seems the low income assistance, while I'm sure it's well intended, is largely a failure, undoubtedly much too little monetary "assistance" to those that need it, but with metaphorical flags of patriotism waved to show how "great" the program is and how it has helped "so many".

[sinkingfeeling]

23. I think you're forgetting that home ownership isn't the only source of housing. Home ownership

exploded after WWII. In 1900 only about 46% of the people owned homes, now it is about 66%.

http://www.census.gov/hhes/www/housing/census/historic/owner.html

HOMEOWNERSHIP RATES

2000 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900

United States 66.2% 64.2% 64.4% 62.9% 61.9% 55.0% 43.6% 47.8% 45.6% 45.9% 46.5%

Alabama 72.5% 70.5% 70.1% 66.7% 59.7% 49.4% 33.6% 34.2% 35.0% 35.1% 34.4%
Alaska 62.5% 56.1% 58.3% 50.3% 48.3% 54.5% NA NA NA NA NA
Arizona 68.0% 64.2% 68.3% 65.3% 63.9% 56.4% 47.9% 44.8% 42.8% 49.2% 57.5%
Arkansas 69.4% 69.6% 70.5% 66.7% 61.4% 54.5% 39.7% 40.1% 45.1% 46.6% 47.7%
California 56.9% 55.6% 55.9% 54.9% 58.4% 54.3% 43.4% 46.1% 43.7% 49.5% 46.3%
Colorado 67.3% 62.2% 64.5% 63.4% 63.8% 58.1% 46.3% 50.7% 51.6% 51.5% 46.6%
Connecticut 66.8% 65.6% 63.9% 62.5% 61.9% 51.1% 40.5% 44.5% 37.6% 37.3% 39.0%
Delaware 72.3% 70.2% 69.1% 68.0% 66.9% 58.9% 47.1% 52.1% 44.7% 40.7% 36.3%
Dist. of Columbia 40.8% 38.9% 35.5% 28.2% 30.0% 32.3% 29.9% 38.6% 30.3% 25.2% 24.0%
Florida 70.1% 67.2% 68.3% 68.6% 67.5% 57.6% 43.6% 42.0% 42.5% 44.2% 46.8%
Georgia 67.5% 64.9% 65.0% 61.1% 56.2% 46.5% 30.8% 30.6% 30.9% 30.5% 30.6%
Hawaii 56.5% 53.9% 51.7% 46.9% 41.1% 33.0% NA NA NA NA NA
Idaho 72.4% 70.1% 72.0% 70.1% 70.5% 65.5% 57.9% 57.0% 60.9% 68.1% 71.6%
Illinois 67.3% 64.2% 62.6% 59.4% 57.8% 50.1% 40.3% 46.5% 43.8% 44.1% 45.0%
Indiana 71.4% 70.2% 71.7% 71.7% 71.1% 65.5% 53.1% 57.3% 54.8% 54.8% 56.1%
Iowa 72.3% 70.0% 71.8% 71.7% 69.1% 63.4% 51.5% 54.7% 58.1% 58.4% 60.5%
Kansas 69.2% 67.9% 70.2% 69.1% 68.9% 63.9% 51.0% 56.0% 56.9% 59.1% 59.1%
Kentucky 70.8% 69.6% 70.0% 66.9% 64.3% 58.7% 48.0% 51.3% 51.6% 51.6% 51.5%
Louisiana 67.9% 65.9% 65.5% 63.1% 59.0% 50.3% 36.9% 35.0% 33.7% 32.2% 31.4%
Maine 71.6% 70.5% 70.9% 70.1% 66.5% 62.8% 57.3% 61.7% 59.6% 62.5% 64.8%
Maryland 67.7% 65.0% 62.0% 58.8% 64.5% 56.3% 47.4% 55.2% 49.9% 44.0% 40.0%
Massachusetts 61.7% 59.3% 57.5% 57.5% 55.9% 47.9% 38.1% 43.5% 34.8% 33.1% 35.0%
Michigan 73.8% 71.0% 72.7% 74.4% 74.4% 67.5% 55.4% 59.0% 58.9% 61.7% 62.3%
Minnesota 74.6% 71.8% 71.7% 71.5% 72.1% 66.4% 55.2% 58.9% 60.7% 61.9% 63.5%
Mississippi 72.3% 71.5% 71.0% 66.3% 57.7% 47.8% 33.3% 32.5% 34.0% 34.0% 34.5%
Missouri 70.3% 68.8% 69.6% 67.2% 64.3% 57.7% 44.3% 49.9% 49.5% 51.1% 50.9%
Montana 69.1% 67.3% 68.6% 65.7% 64.0% 60.3% 52.0% 54.5% 60.5% 60.0% 56.6%
Nebraska 67.4% 66.5% 68.4% 66.4% 64.8% 60.6% 47.1% 54.3% 57.4% 59.1% 56.8%
Nevada 60.9% 54.8% 59.6% 58.5% 56.3% 48.7% 46.1% 47.1% 47.6% 53.4% 66.2%
New Hampshire 69.7% 68.2% 67.6% 68.2% 65.1% 58.1% 51.7% 55.0% 49.8% 51.2% 53.9%
New Jersey 65.6% 64.9% 62.0% 60.9% 61.3% 53.1% 39.4% 48.4% 38.3% 35.0% 34.3%
New Mexico 70.0% 67.4% 68.1% 66.4% 65.3% 58.8% 57.3% 57.4% 59.4% 70.6% 68.5%
New York 53.0% 52.2% 48.6% 47.3% 44.8% 37.9% 30.3% 37.1% 30.7% 31.0% 33.2%
North Carolina 69.4% 68.0% 68.4% 65.4% 60.1% 53.3% 42.4% 44.5% 47.4% 47.3% 46.6%
North Dakota 66.6% 65.6% 68.7% 68.4% 68.4% 66.2% 49.8% 58.6% 65.3% 75.7% 80.0%
Ohio 69.1% 67.5% 68.4% 67.7% 67.4% 61.1% 50.0% 54.4% 51.6% 51.3% 52.5%
Oklahoma 68.4% 68.1% 70.7% 69.2% 67.0% 60.0% 42.8% 41.3% 45.5% 45.4% 54.2%
Oregon 64.3% 63.1% 65.1% 66.1% 69.3% 65.3% 55.4% 59.1% 54.8% 60.1% 58.7%
Pennsylvania 71.3% 70.6% 69.9% 68.8% 68.3% 59.7% 45.9% 54.4% 45.2% 41.6% 41.2%
Rhode Island 60.0% 59.5% 58.8% 57.9% 54.5% 45.3% 37.4% 41.2% 31.1% 28.3% 28.6%
South Carolina 72.2% 69.8% 70.2% 66.1% 57.3% 45.1% 30.6% 30.9% 32.2% 30.8% 30.6%
South Dakota 68.2% 66.1% 69.3% 69.6% 67.2% 62.2% 45.0% 53.1% 61.5% 68.2% 71.2%
Tennessee 69.9% 68.0% 68.6% 66.7% 63.7% 56.5% 44.1% 46.2% 47.7% 47.0% 46.3%
Texas 63.8% 60.9% 64.3% 64.7% 64.8% 56.7% 42.8% 41.7% 42.8% 45.1% 46.5%
Utah 71.5% 68.1% 70.7% 69.3% 71.7% 65.3% 61.1% 60.9% 60.0% 64.8% 67.8%
Vermont 70.6% 69.0% 68.7% 69.1% 66.0% 61.3% 55.9% 59.8% 57.5% 58.5% 60.4%
Virginia 68.1% 66.3% 65.6% 62.0% 61.3% 55.1% 48.9% 52.4% 51.1% 51.5% 48.8%
Washington 64.6% 62.6% 65.6% 66.8% 68.5% 65.0% 57.0% 59.4% 54.7% 57.3% 54.5%
West Virginia 75.2% 74.1% 73.6% 68.9% 64.3% 55.0% 43.7% 45.9% 46.8% 49.5% 54.6%
Wisconsin 68.4% 66.7% 68.2% 69.1% 68.6% 63.5% 54.4% 63.2% 63.6% 64.6% 66.4%
Wyoming 70.0% 67.8% 69.2% 66.4% 62.2% 54.0% 48.6% 48.3% 51.9% 54

[Trillo]

28. It wouldn't surprise me if those figures mean mortgages (not yet ownership)

ownership is owning something outright. A person who has a mortgage falsely believes they're an owner: only after paying off the mortgage is that converted to real ownership. Until then, the bank is the real owner, and they have none of the property-maintenance responsibilities.

It's a curious phenomenon, the ability of wealthy entities like bankers and their shareholders to be the real owners, while avoiding responsibility for that ownership. Everyone else pays and pays for near a lifetime (not so different from renting), and a number of them then lose it all to medical debt at the end (ever hear of reverse mortgages?).

If you're very, very lucky, someday you may pay off your mortgage and really become a "property owner". People often have a party after making their final mortgage payment.

The only advantage to the person with a mortgage that I've been able to discern is that it locks in a particular monthly payment, allowing escape from the vagaries of fluctuating market prices (which for land and housing are mostly upward for most of our history). Rents are often higher after one or two years of mortgage payments.

[skoalyman]

29. You can still loose your home if you get sick and get behind on

property taxes.Back when we lived in Louisiana oh 10 years ago you didn't have to pay taxes on your property until they started sending a small tax bill out that claimed it was for fire tax something like that it wasn't very high at first maybe 50.00 then as the years went by they finally up it to over 400.00 a year.So if they can't get you one way they always come up with another.

[Indenturedebtor]

5. I completely agree with you. That's what a sensible gov't would do

Unfortunately our social contract has been amended to be By the Rich - For the Rich

[Festivito]

4. AS FIRST PAYMENTS MAYBE. The rich want our tax dollars.

25 or 100 billion (to the rich corporations). It's only about $100 to $400 per person, family of four: $400 to $1600. Not so bad.

BUT WAIT.

There's more to come I'd bet.

In for a dollar, in for a thousand, then in for more.

Only those overspending bad people will lose their houses.
WELL THEN, only those overspending bad banks should lose their offices!

Not with our tax dollars.

[sinkingfeeling]

6. Without Fannie Mae, home ownership in this country will be over. Only those who inheirted their

houses, own their own private bank, or can pay cash for a house will be owners. Fannie Mae has less than 1% of its mortgages in default. By their charter, the US Treasury has guaranteed acccess to a $2.5 billion line of credit.

[Festivito]

11. Privatized for profit OR LOSS. Restart them, NOT WITH A BAILOUT.

The current holders bought into a privatized, once government owned AND CONTROLLED, corporation. They then sought to stop government regulation and lost money.

Now they want the people who they did not want to have control, and who were NOT GOING TO PROFIT, to share the opposite of profit, the loss.

NO.

[sinkingfeeling]

19. The plan is to put capital into the system, not reimbuse shareholders.

[Festivito]

34. Put capital, i.e. tax dollars, into the system, i.e. the owned-by-them corp.

And, NOBODY suggested reimbursing/buying-off/paying-back/bribing the shareholders, let alone me. Putting CAPITAL into the SYSTEM will give those shareholders our tax dollars and it is more, much more, than they deserve.

They deserve nothing nada nix nil nothing.

[wicket]

8. Another Repuke administration, another taxpayer bailout

:puke:

[Doctor_J]

9. Meh. That's a couple months in Iraq

Following O's Iraq plan instead of McAlzheimer's will pay for this 100 times over.

[emad]

13. Cheap at the price. UK's Northern Rock Bank fiasco is costing $200bn

of taxpayers' money, except that by all reckonings it's not money that the government has stashed away in some secure deposit account earning interest but is dosh borrowed at 2% over base rate from dodgy Far Eastern hedge fund financiers.....

[defendandprotect]

15. ....and what do taxpayers OWN when we finish bailing them out????

[wordpix]

27. and what are the conditions placed on this loan or tax dollar giveaway?

In previous giveaways, the conditions placed on those who got the bailouts were few to none.

[baldguy]

16. The bankers get a bail-out

and the homeowners they preyed upon get shafted.

[scheming daemons]

17. Or... 2 and a half months of the war...... in that light..... pretty cheap

[Zorra]

20. If we divide $25 billion up among 300 million Americans, how much would each person receive?

I don't have a calculator handy.

[Trillo]

21. Oh, this looks like about $60 Million of taxpayer subsidy to each of the Uber Wealthy.

Top 400 families likely own majority stakes in most large corporations. The Uber Wealthy. Since all corporations are majority owned by these Top 400 families, then 25 billion in welfare divided by 400 families tells us how much of this taxpayer bailout subsidizes these folks, on average. That's about $60,000,000 going to each one of these Top 400 folks from U.S. citizens from this one proposal alone.

If we divide $25 billion up among 300 million Americans, how much would each person receive?

Not much, but I presume your logical thrust is that corporate welfare should be given to all corporations, not just the ones in trouble (because you used all Americans, not just the ones in financial difficulty and losing their homes. And not just taxpayers as well, you're including elderly and newborns)

So following this logic, how many corporations are there? Multiply 25 Billion by that number, and perhaps we end up with a more realistic total taxpayer cost of corporate bailouts and corporate welfare.

[Zorra]

22. Nah. I mean, literally, just give an equal share of the $25 billion to every American citizen

and the heck with Freddie and Fannie.

[Trillo]

24. About $250 divided by 3.

About $80 each.

[Zorra]

25. Thanks. n/t

[valerief]

26. Is 60 mill enough for the uber-rich? Shouldn't they each get 60 bill?

Oh, wait, they are!!!! That's what the war is for!!!!!

[hatrack]

30. To start with . . .

More bills will arrive later, I'm sure.

[jazzjunkysue]

31. We're going to pull out of the middle east simply because we'll be broke.

We're doing exactly what the russians did.

[DCKit]

32. What benefit will the taxpayers reap from this handout?

The good will of our corporate overlords?

Can we get some prosecutions for corporate malfeasance over here? I know I'd have a whole lot more confidence in the system were those who "broke" Freddie and Fanny held to account.

The fact is, Freddie and Fanny aren't broken. This is just a1 taxpayer-funded scam to bail out the sub-prime mortgage lenders, hedge funds and uber-rich investors by funding F&F so they can buy their worthless paper - on our dime.

If these banks and other corporate megaliths are "too big to fail", it's time to regulate them to a size where they can drown in their own bathtubs without taking the entire economy along with them.

[entanglement]

33. Privatized profits, socialized losses. Business as usual, in other words.

[SahaleArm]

36. More like a $1-trillion - there's a reason why the debt ceiling was raised n/t