The Office of Management and Budget released a report yesterday on the budgets and proposed overhauls of Fannie Mae and Freddie Mac that included the possibility of liquidating their assets. But don’t get your hopes up.
The two government run mortgage finance companies have been scandalously costly for tax-payers, costing Americans far more in bailout money than they ever saved in cheaper mortgages. The OMB says that the two companies will need at least $92.2 billion more in fiscal 2010. This is on top of the $78.2 billion in aid they’ve received since they were taken over by the government in September.
The entire point of having Fannie and Freddie operate as government sponsored entities was that they could borrow at lower rates than purely private companies. This savings enabled them to make mortgage loans at lower rates, and allowed them to buy up or guarantee mortgages from private lenders at rates that would otherwise have been uneconomical. Over the years, Fannie and Freddie may have saved Americans as much as $100 billion in mortgage payments. Now the OMB says they’ll need that much just to get through next year.
Unfortunately, shutting down these money pits is just one of the options being considered, and not the most likely one. From Bloomberg:
Alternatives range from “a gradual wind-down of their operations and liquidation of their assets,” to returning the two companies to their previous status as government-sponsored enterprises that seek to maximise shareholder returns while pursuing public-policy goals, according to OMB’s analysis of President Barack Obama‘s proposed federal budget.
In a less corrupt political system, we’d have a chance of liquidating Fannie and Freddie. But these two companies are too well-connected to ever get shut down, and our political system too thoroughly corrupted to stand up to them.
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