Taxpayers will pay a very stiff price for allowing the government to over-encourage homeownership. Yesterday, the Federal Housing Finance Agency released estimates that through 2013, Fannie Mae (FNMA) and Freddie Mac (FMCC) will draw between $221 billion and $363 billion from the Treasury under three different economic scenarios. Since they were taken over on September 7, 2008, Fannie Mae and Freddie Mac have drawn $148 billion. Cleaning up this mess will take well beyond 2013, so these costs could rise higher.
Treasury is due to release a proposal for what to do with Fannie Mae and Freddie Mac in President Obama’s FY12 budget, due February 7, 2011. Secretary Tim Geithner has vowed to prevent them from ever again running up such losses, but it’s unclear how he would do that. Some would privative them and force them to compete in the market. Others would make them a government agency, but with strict limits on risk taking. The days of allowing them to operate as quasi-private agencies with an implicit – now explicit – federal funding guarantee are over. This American Enterprise Institute brief lays out the options well. AEI has long supported privatization. Congress would have to act to reform Fannie Mae and Freddie Mac, and it may take years for a compromise to emerge. Meanwhile, the taxpayers will pay.