The Fannie and Freddie Black Hole

Featured Article, By Paul Kiel, ProPublica

With the $700 billion TARP to focus on, it can be easy to forget about the massive taxpayer bailout of Fannie Mae and Freddie Mac. Right now, the combined total is at $84.9 billion—more even than AIG. In the next week or two, that number will continue upward when Fannie and Freddie report their second quarter results. Every quarter since their bailout, the companies have reported new gigantic losses and requested more taxpayer money to fill the hole. The losses will continue for “at least the next year or so,” Federal Housing Finance Agency Director James Lockhart said yesterday.

Since the government takeover last September, the companies have been under the conservatorship of the Federal Housing Financce Agency. And the companies have been used as an arm of government policy—by helping stablize the mortgage market and prevent foreclosures. (Fannie and Freddie own or guarantee about half of all U.S. residential mortgage debt.) Repaying the bailout money has taken a backseat.

So it’s not a surprise that Lockhart also said yesterday that “some” of the money pumped into Fannie and Freddie will never be repaid. The key question, of course, is how much “some” turns out to be.

It’s not a question likely to be answered any time soon. The administration has said it will produce a report on Fannie and Freddie’s future early next year. How the companies will ever repay the money is tomorrow’s problem, not today’s.