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 this increase in available credit for the federal corporations, the Obama administration simply avoids the embarrassment and humiliation of addressing the failures of these institutions in public media, after all they already received more bailout money than any other corporation due to their close ties with government officials.
Fannie and Freddie are portraits in miniature of a government distorted housing market getting a government bailout. The possibility that tax payers will have a higher bill to pay was noted by each federal corporation recently in disclosures posted, due to the increase in mortgage defaults.
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.
At the same time, the Administration and Congress avoid the criticism that Fannie and Freddie are getting more taxpayer money even though their executive compensation is not subject to the pay czars limits, because they were bailed out before the pay czars strictures were put in place.
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.
With their $6 million bonuses being backed by the government, the executives for Fanny and Freddie have no incentive to perform better.
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. With a combined total of over 100 billion of our taxpayer dollars already doled out to Fannie and Freddie, the government simply allows more money for them.
Fannie Mae and Freddie Mac finance mortgages by buying them from lenders and selling them to investors. 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. Not to mention that their balance sheets still conceal 100′s of billion of dollars of securitizations that are not yet counted.
After being granted the backing of being given added “credit” based on their loses in a quarter, based on the Treasury’s recent flexible financing formula, Fannie and Freddie have no incentive to right themselves. 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.
Keep in mind that this increase in credit comes at a point where the performance of Freddie and Fannies portfolio continues to decline and President Obama’s plans to slow or stop foreclosure have been fruitless.
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