All real estate investors can expect bad news regarding this 4th quarter of 2009 after Freddie and Fannie requested a $400 billion ceiling in their credit pool.
With that move, largely ignored in the holiday rush, the White House deftly avoids a nasty, negative headline criticizing the two biggest basket cases in the markets, publicly traded companies who got the biggest total bailouts of all because they are hostage to the Congress’s every housing desire.
These two wasteful and inefficient bureaucracies are simply excellent examples of further government mismanagement of the housing market. Amid rising defaults, both made unusual disclosures recently, noting that the government’s pressure on them to assist the housing market could cost taxpayers.
Thus, increasing their lines of available credit is the best, and most secretive way, the administration and legislators can bail them out without attracting a lot more public scrutiny.
Now, don’t think that the executive pay guidelines recently installed by the new “Pay” Czar will apply to either of them, given that they received their bailout money well before the pay guidelines were put in place, and they credit increase isn’t considered a bailout.
Unlike Citigroup, Bank of America, AIG, Chrysler, and GM, Congress deemed that Fannie Mae and Freddie Mac had not received “exceptional assistance” and therefore did not have to have their pay decisions scrutinized by the pay czar.
As poorly as these two institutions have performed over the past year, the possibility of their executives receiving their $6 million pay seems ridiculous.
With lines of credit allotted to each corporation already increased by over 200% in 2009, a further increase of another 100% being requested will simply be added to the tax payer tab and will require a very long time to pay back, if it ever does get paid back. Each corporation has already received more than $51 billion from American tax payers.
Usually the process goes as follows, Fannie and Freddie purchase loans from banks, alleviating the banks from any risk whatsoever, and sell them to investors, who assume all the risk for loans they know every little about. By guaranteeing or owning nearly half of all American home loans, Fannie and Freddie are positioned right in the middle of the housing market failure. That is all without including the hundreds of billions still concealed in the securitizations in their balance sheets.
Under the Treasury’s new flexible financing formula, Fannie and Freddie get more taxpayer support based on a formula that takes into account how much each company loses in a quarter. Given President Obama’s efforts to stabilize the housing market and stop the slide in housing prices, even with Fannie and Freddie under conservatorship, they have been touted to promote the failed policies pushed by the government.
These efforts have come at a time when the performance of their portfolios has continued to decline and the Administration’s plans to address foreclosures have not worked.
The author enjoys writing articles about boise real estate & boise id real estate. To learn more about these topics click on the links above!