Monday, June 14, 2010

Good News - Fannie and Freddie Fix could be a mere $160 Billion

A pittance actually compared to the 1 Trillion worst case scenario:
The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple.

Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.

One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.
The Big Picture  thinks the trillion dollar figure is high unless of course banks continue to dump their bad loans into the quasi-governmental boondoggles known as Fannie and Freddie:
That trillion dollar number has a number of challenging assumptions in it. It assumes a large downleg in housing prices, a continuing foreclosure surge, and ongoing unemployment.

My estimates are for about half of that — between $450-500 billion dollars. But with just the right — or wrong — economic policies, bailouts and bad decisions, I wouldn’t rule out a trillion dollar loss. And if we keep allowing banks to dump all of their bad loans onto the GSE’s books, I would raise my odds of a trillion dollars in losses from 25% to 100% . . .
 The American people own 80% of the GSE's where banks are dumping their bad loans.  Don Surber says Enough is Enough:  
We, the people, are tired of what becoming an America with a centralized, government-controlled economy with a perpetual 10% unemployment rate.


If it passes, sue and stop it until November 2 swhen the Democratic Congress is voted out of power.
To which I say Amen.

H/T: Memeorandum


  1. Let's just hope they can pass this legislation to audit Fannie and Freddie.


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