Too Big To Fail Freddie Mac Loses $4.4 Billion Request Too big to fail Government controlled mortgage giant Freddie Mac has requested $6 billion in additional stimulus tax payer relief after posting more losses from the failed housing market. Freddie Mac said that it lost $4.4 billion from July through September for the third quarter, nearly the same losses of $4.1 billion during the same quarter of 2010. Freddie Mac $6 billion request from taxpayers is the largest since April 2010.
This is the third request for stimulus bailout money Freddie Mac expects from the government. The government previously rescued Freddie Mac and subsidiary company Fannie Mae in September 2008 after both posted massive losses on risky mortgages threatening to collapse both mortgage lenders. Since then, a centralized federal regulator has controlled their financial decisions at our expense.
Taxpayers at the expense of the government bear this stimulus bailout cost having already spent $169 billion to bailout Fannie and Freddie according to the 2008 financial crisis. Another reason Freddie needs more aid is because it has received less money from mortgage insurers which will increase the need for additional bailout funds. The government estimates it could cost up to $51 billion more to support the companies by 2014.
Homeowners are paying less interest because they are able to refinance at lower mortgage rates. Bankrupt mortgage insurers are not paying out as much money when homeowners default. Fannie and Freddie buy home loans from banks and other lenders, package them as bonds with a guarantee against nonpayment, and then sell them to investors. When property values drop, homeowners default unable to afford the payments and more is own on the property than what the property is worth. Fannie and Freddie must pay for the losses. The price for being greedy.
Freddie and Fannie labeled “Too Big to Fail” own about half of all US mortgages and home loans worth more than $5 trillion. According to reports they back nearly 90 percent of new mortgages over the past year. According to Freddie Mac’s Chief Executive Officer, many homeowners are “refinancing at lower mortgage rates” getting shorter terms for their mortgage, saving homeowners money.
Even with shorter terms, homeowners are still defaulting on their mortgages, mainly because of unemployment and a faltering economy across the nation. Unemployment is causing late payments as homeowners are searching for ways to pay on their mortgages if they can at all.
Many mortgage loans require insurance that’s protected by law, which is meant to protect lenders and investors from losses if a homeowner defaults and the lender doesn’t recoup costs through foreclosure. But when those mortgage insurers fail, they pay less in claims.
Pressure is on the government to eliminate Fannie and Freddie and reduce taxpayers’ exposure to risk. The government should have let both companies fail not leaving the tax payer to burden the cost to finance very bad lending practices. The Treasury Department under the President Obama administration has put a plan in place earlier this year to slowly dissolve Fannie and Freddie. Eliminating Fannie and Freddie would change how homes are bought and specify who can afford them.
Another issue facing tax paying Americans and Congressional members are the excessive executive bonuses Fannie and Freddie have paid out nearly $13 million in bonuses. With stimulus bailout funds from the government Fannie and Freddie have not altered substantial changes to executive pay policies.
Congress has taken action against Fannie and Freddie calling the “wasteful bonuses” a “step in the wrong direction.” Some lawmakers have called on the Obama administration to terminate the bonus payments. Other have called to make changes to prevent such bonuses from being awarded in the future.
60 senators recently forwarded a letter to Washington requesting Fannie and Freddie bonuses should be canceled with extensive changes to the executive compensation policies. Freddie Mac and Fannie Mae have requested $6 billion more stimulus bailouts from the taxpayers. How much of the $6 billion will be used to pay on bonuses to Fannie and Freddie.