Oh Wait, the Freddie/Fannie Scam is Now Unlimited
Update: Go read Numerian.
The U.S. Treasury Department will remove the caps on aid to Fannie Mae and Freddie Mac for the next three years, to allay investor concerns that the companies will exhaust the available government assistance.
The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.
The Obama administration is “beginning to realize it’s not getting better and it’s not likely to get better” soon in the housing market, said Julian Mann, who helps oversee $5.5 billion in bonds as a vice president at First Pacific Advisors LLC in Los Angeles. “They don’t want the foreclosures now, so they’re saying, we’ll pay whatever it takes to continue to kick the can down the road.”
Basically, at this point, almost all mortgage lending is guaranteed by the federal government under the FHA, or it doesn’t happen. Private lending has pretty much dried up.
Since there’s no way Freddie and Fannie took unlimited losses, one has to wonder what all this money is going to be used for. Is it to make up losses they don’t want to admit? Is it to make future bad mortgage loans? Is it so they can take bad debt from the banks and put the government at risk for it?
Notice also how they’ve made an unlimited commitment without consulting Congress. You only need Congressional approval to spend money on wars and healthcare, when it comes to bailing out banks, apparently the Presidency controls the power of the purse all by itself.
It’s also interesting that this is unlimited till the end of 2012.
(See also the earlier post when it was just a 400 billion increase, not unlimited.)