Out of Control Policy Blog

Next Round of Losses for the GSEs

The numbers are in for Fannie Mae and Freddie Mac on the second quarter of 2010, and from all accounts, they are stabilizing—if stability includes being essentially owned by the government without a chance to survive alone in a private market.

But losses were down in the second quarter:

  • Fannie Mae reported operating losses of $1.2 billion and will only ask for $1.5 billion from the Treasury to cover its shortfall and meet financial obligations. This is down from the $8.4 billion they asked for at the end of the first quarter this year.
  • Freddie Mac reported losses of $6 billion for its shareholders and but asked yesterday for just $1.8 billion from Treasury, mostly to pay the $1.3 billion dividend it owes the government. This is down from a $8 billion loss last quarter.

All totaled, the GSEs have needed $148.3 billion from Treasury as a part of the federal program to back stop all necessary funding shortages at the mortgage giants. According to DealBook, $63.1 billion of that is Freddie and the rest is Fannie.

All of this comes a week removed from Treasury's summit on GSE reform. There is a rumor that Obama will announce a plan to use the Treasury and FHFA's conservatorship power over the GSEs to write off a lot of negative equity or summarily refinance millions of mortgages at that summit. It is unclear what this would mean to the GSEs since a plan hasn't been officially announced.

At the end of the day, the GSE losses are just adding up to 1) more debt for taxpayers, 2) more distortion of the housing market keeping it from sustainable recovery, and 3) the rebuilding of a housing bubble. With the number inflation we've experienced in America, these losses may not seem like much—especially since they are "lower" than before. But this taxpayer bailout number needed for the last quarter really isn't a good thing: $3,300,000,000. It's over $10 from every person living in the United States today.

Anthony Randazzo is Director of Economic Research


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