Losses from Fannie Mae, Freddie Mac seizures may near $400 billion


Taxpayer losses from the government seizure of failed housing finance giants Fannie Mae and Freddie Mac could reach nearly $400 billion, but likely won’t top that level as some had feared, the firms’ federal regulator said Wednesday.

To offset some losses, the Federal Housing Finance Agency is seeking billions of dollars in repayment from banks that sold bad loans to the firms, acting director Edward J. DeMarco said.

Some banks are balking, and the agency is considering tougher action, DeMarco said. But he did not specify what steps might be taken.

The bailouts of the two former government-sponsored enterprises, which continue to keep the mortgage financing market afloat almost single-handedly, already have reached $148.2 billion as bad loans they purchased during the real estate boom continue to fail.

Concerns were raised about the ultimate price tag when the Obama administration in December lifted a $400-billion cap on the federal commitment to Fannie and Freddie through 2012. Officials at the time said they did so to provide certainty to the real estate market as the White House and Congress wrestle with the future of the entities.

DeMarco told a House Financial Services subcommittee Thursday that the total cost of the bailout “appeared to be less than $400 billion.”

That figure would hold even under most scenarios analyzed by Fannie and Freddie in which the economy suffers another “severe stress.”

But to provide Congress and the public a better idea of the potential costs, the agency is working to put the finances of Fannie and Freddie under more extensive stress tests similar to those regulators used to assess the financial condition of the nation’s largest banks last year.

Given the projections, Rep. Judy Biggert (R-Il.) asked DeMarco whether he would support legislation preventing Fannie and Freddie from borrowing more than $400 from taxpayers, who now own 79.9% of each of them.

DeMarco said he would oppose such a move because it would take away the clarity the administration provided to investors in December about the backing for mortgage securities from Fannie and Freddie.

“People are trading billions of dollars of securities based on that,” DeMarco said. “I don’t think we should come back and alter the terms of that at this time.”

DeMarco said the government is pushing banks that made bad mortgages purchased by Fannie and Freddie to buy back the loans, offsetting some of the losses. The banks can be required to repurchase loans that default if they did not meet housing entities’ underwriting standards by accepting false borrower information or appraisals, for instance.

Lenders repurchased $8.7 billion worth of single-family mortgage loans last year, DeMarco said. And as of June 30, an additional $11.1 billion in repurchase requests from Fannie and Freddie were pending. Lenders haven’t responded for three months to more than a third of those requests. The delays, he said, are “a significant concern.”

FHFA is in discussions to recoup the money and might seek to force the repayments, he said. In July, the agency also issued 64 subpoenas to determine whether other firms had legal responsibility to buy back additional mortgages purchased by Fannie and Freddie.

Altogether, Fannie and Freddie hold $1.6 trillion worth of mortgage loans.

“We must begin to think about approaches for recouping the taxpayers’ money in the long run,” said Rep. Paul E. Kanjorski (D-Pa.), the subcommittee’s chairman.

Republicans continued to criticize the administration and congressional Democrats for not moving faster to end the bailout of Fannie and Freddie and to reduce the risk of further taxpayer losses. The administration faces a January deadline imposed by Congress for presenting a plan, and top officials have said there will be major changes.

But Michael S. Barr, assistant Treasury secretary for financial institutions, said lawmakers shouldn’t rush into changes.

Fannie and Freddie have significantly tightened their standards for mortgages they purchase, Barr said, stressing that most of the firms’ losses come from mortgages bought before the government takeovers.