Cost of Saving Freddie and Fannie Could Reach $1T

If you keep wondering why the US budget deficits keeps ballooning, consider that that the cost of saving Freddie Mac and Fannie Mae could be as high as $1 trillion. The companies are now 80%owned by U.S. taxpayers and have already used $145B from a line of government credit.

Acording to Bloomberg, both companies own or guarantee 53% of the the $10.7T in residential mortgages. "Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise".

"The CBO calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple".