Inspector General: Fannie and Freddie Solvency Now 'Mathematically Impossible'

Fannie Mae

Photo: futureatlas via flickr

A devastating report from the Federal Housing Finance Agency’s Office of Inspector General (.pdf) says it now appears “highly unlikely – if not mathematically impossible – for the Enterprises to buy themselves out of the conservatorships.” (Emphasis ours.)The FHFA was created to act as conservator of the two government sponsored enterprises in 2008 when the housing market collapse.

The report spells out Fannie and Freddie’s essential brain death:

“The Enterprises currently owe Treasury $183 billion, and are required to pay 10% dividends on Treasury’s outstanding investment. Merely paying the 10% annual dividend (i.e., $18.3 billion, presently) would not reduce Treasury’s outstanding investment. Moreover, the Enterprises have had to borrow from Treasury at least part of their dividend payments to Treasury, thus increasing the value of their outstanding debt.”

None of this should be surprising, given the OIG also found parts of the GSEs that were “bereft of strong regulatory oversight and enforcement and allowed the enterprises to have inadequate internal controls.”

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