By Pete the Banker
Congressional Budget Office Substantiates Need For Administration’s Fannie Mae and Freddie Mac Christmas Gift Of Unlimited Treasury Support, Real GSE Losses Are Two and One Half Times Those Reported By The Administration The CBO basically is assuming that the Fannie Mae and Freddie Mac are essentially Federally Chartered Institutions and Government Budget items. The real current cost of the Fannie Mae and Freddie Mac to the taxpayer is reportedly $291 Billlion according to the Congressional Budget Office rather than the more publicized earlier figure out of the Administration of $112 Billion. The CBO further projects that the real cost will ultimately climb to $394 Billion over the next decade using very conservative assumptions on further GSE and mortgage losses. The projected costs do not include Administration or repayment of interest on Treasury debt.
“The large 2009 figure reflects the recognition of substantial losses on the approximately $5 trillion in mortgages held or guaranteed by the entities at that time. Following the housing bust that began in 2007, Fannie Mae and Freddie Mac experienced unprecedented portfolio losses stemming largely from their holdings of risky private securities, such as securities backed by subprime and Alt-A mortgages that had historically high default rates. CBO’s $291 billion figure closely corresponds to the entities’ own estimates of the deterioration of their net worth when valued at market prices…CBO’s $291 billion figure closely corresponds to the entities’ own estimates of the deterioration of their net worth when valued at market prices—from a surplus of $7 billion in June 2008 for the two entities combined to a deficit of $258 billion in June 2009.” http://cboblog.cbo.gov/ (Jan 14, Entry)
In contrast, the Administration considers Fannie Mae and Freddie Mac to be nongovernmental entities for budget purposes. The Administration’s Office of Management and Budget (OMB) continues to treats Fannie Mae and Freddie Mac as off budget items falling back on last years Conservatorship Agreement. As such it treats its cost as only the amount of those cash infusions to the GSE’s and not potential loan losses despite government guarantees. Since the Treasury provided a total of $95.6 billion in cash outlays in fiscal year 2009, the government’s final report of spending for 2009 included that amount (CBO’s August 2009 estimate of cash infusions was $112 billion). The OMB further estimated future cash outlays to the GSE’s from the Treasury of another $65 billion between 2010–2019.
The total losses calculated under this scenario are only $170 Billion.
Meanwhile to resolve this disparity among others, Representative Darrell Issa (R-CA), a House Committee on Oversight and Government Reform member; and other committee members are attempting to reinstate the prior Inspector General Edward Kelly who was removed from his oversight position with the faze out of the Federal Housing Finance Board (FHFB).
The committee is calling for the immediate appointment of an inspector general for the Federal Housing Finance Agency (FHFA), an appointment over which the Democrat Senate has been stalling.
One wonders when the Administration finally admits failure, if they will fully write off the total costs incurred by the GSE’s.
Is the Administration attempting to hide the full amount of the losses on Fannie Mae and Freddie Mac? Are the Administration and Congressional Leadership delaying the appointment of an Independent Inspector General in order to minimize the publicity over mounting GSE losses?
Tell ’em where you saw it. Http://www.victoriataft.com