Fannie and Freddie Will Probably be Backed by Government as Long as is Necessary, Says Analyst

By Keat Foong, Executive EditorWashington, D.C.—The government will likely continue to support Fannie Mae and Freddie Mac as long as is necessary, suggested a senior fellow at the conservative think-tank American Enterprise Institute. “Fannie Mae and Freddie Mac will continue in business into the future under the government’s control,” Peter Wallison tells MHN. Wallison said the $200 billion the Treasury has so far committed to backstop Fannie Mae and Freddie Mac to keep them solvent will not be nearly enough. There are huge amounts of supprime and other debt that the companies contracted between 2005 and 2007, he said. These are “terrible loans which are failing at an unprecedented rate.” However, Wallison said he believed the government will continue to “feed money to Fannie Mae and Freddie Mac” as long as the housing market is in trouble. The Treasury will provide as much as $100 billion in credit to the two giants through 2009 in return for preferred stock. For the third quarter, Fannie Mae has already reported a $29 billion loss and Freddie Mac has reported $25.3 billion in losses due to lower mortgage investment values among other causes. The Washington Post has reported that Freddie Mac will receive a $13.8 billion cash injection from the government, the first of the payout from the $200 billion commitment. “All I know for sure is that the taxpayer will pick up a huge loss,” contends Wallison. Wallison says the two entities’ losses will continue to be covered by the government as long as the housing market is weak. He suggested it may be only after the housing market recovers that attention will be paid on the future of the two entities.