Taxpayers Taking a Hit in Struggles of Fannie Mae, Freddie Mac, and It Could Get Worse
By Jim Angle
FoxNews.com
Published November 15, 2010
When you see a foreclosure sign, chances are good that you, as a taxpayer, are on the hook for the costs involved because Congress has its very own money pit -- federal guarantees of mortgages gone bad. And the official estimates for the damage put it at more than $300 billion.
"It's probably likely to be closer to $500 billion by the time all of this is finished," David Johns of the Heritage Foundation said. "And you and I get to pay that."
Peter Wallison of the American Enterprise Institute warns that "the taxpayers ought to get ready to suffer some very substantial losses because of Fannie and Freddie."
That would be Fannie Mae and Freddie Mac, which are now in conservatorship, meaning they are under the complete control of the federal government.
One reason the costs to the taxpayer are so high is that they control the lion's share of the mortgage market.
"Fannie Mae and Freddy Mac own or guarantee a little over half the mortgages in this country," said Ed DeMarco, the acting director of the Federal Housing Finance Agency under which the two lenders fall.
And their role is getting bigger, not smaller. "They are buying about 90 percent of all the loans that are made in the United States, all the home loans that are made in the united states today," Wallison said.
Fannie and Freddie now hold some 240,000 foreclosures, which means additional costs for the taxpayer because lots of things can happen to an empty house, none of them good. People sometimes strip the houses of pipes or vandalize them, for example.
In fact, Fannie and Freddie have spent more than $2 billion dollars of taxpayer money just this year to maintain empty homes.
One of many reasons DeMarco said foreclosures should go forward if they are justified so the homes can be sold.
"If we delay foreclosures for no good reason, that is going to add cost to the taxpayer," he said. "And as the conservator of Fannie and Freddie, I'm charged with trying to minimize those taxpayer losses, and we're working very hard here to do that."
Wallison agrees. "They'll never recover the total amount that they are owed, but the longer we do not foreclose, the worse their losses are going to be," he said.
With all that on the table, President Obama has nominated a new person to run the agency, Joseph A. Smith. Johns said Smith has worked to slow down foreclosures in North Carolina, which some fear could pose a problem at the federal level.
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