Fannie & Freddie May Need Another $221 Billion Through 2013

On 10/21/2010, the Federal Housing Finance Agency (FHFA) stated that Fannie May & Freddie Mac’s additional capital needs are expected to be between $221 billion and $363 billion, through 2013.

The potential draws under the Preferred Stock Purchase Agreements (PSPAs) with the US Department of the Treasury to date have been  $148 billion.  The FHFA’s projections primarily reflect credit related expenses (provision for credit losses) on the two government seized enterprises’ pre-conservatorship mortgage business.

The FHFA’s projections are based on three scenarios which also use house price projections for a stronger near-term recovery, the current baseline, and a second deeper recession.   The projected combined cumulative Treasury draw for both Enterprises through December 31, 2013 reach $221 billion under Scenario 1.  Under Scenario 2 it is $238 billion, and  under Scenario 3 it reaches $363 billion.

Even under the more positive stronger near-term recovery, the combined draws of $221 billion is a good reality check for the US economy.  It is still weak and will a recovery will be slow.  This is not unexpected considering how many defaulted mortgages are out there, and how few full time & long term jobs have really been created to replace those that have been lost.  This additional money is basically going to be coming from the taxpayer in one form or another, which will put more pressure on the government to increase the taxes of the middle class as the recovery continues.

The report contains the full projection, approach used, and scenarios in detail:
http://www.fhfa.gov/webfiles/19409/Projections_102110.pdf

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Author: The Investment Blogger

I’m a private investor, who developed the “function-centric investing” paradigm. I am an investor who blogs a little here and there, rather than a blogger who invests a little here and there. I'm passionate about investing and sharing investment knowledge!

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