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Fannie/Freddie Bailout Could Total $363 Billion

So out of the blue this morning I get a bill for anywhere from $221 billion to $363 billion; it wasn't addressed to me alone, but as a taxpayer I tend to take these things very personally.

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The "projected" bill came from the overseer of Fannie Mae and Freddie Mac, the FHFA (Federal Housing Finance Agency), which "released projections of the financial performance of Fannie Mae and Freddie Mac, including potential draws under the Preferred Stock Purchase Agreements with the U.S. Department of the Treasury." (You can read the full release here)

It's the bill for the bailout.

So far the Treasury has infused $148 billion to keep Fannie and Freddie afloat; this as their book of business from the height of the housing boom continues to bleed through every band-aid applied. The "projections" released today, "are intended to give policymakers and the public useful snapshots of potential outcomes for the taxpayer support of Fannie Mae and Freddie Mac," writes FHFA Acting Director Edward DeMarco in the release.

So as we approach election day and as we approach the Administration's promised January deadline for a GSE reform game plan, we get to look at some super scary scenarios of what the continuing mortgage mess is going to cost us all. There is a disclaimer: "The results do not define the full range of possible outcomes. This effort should be interpreted as a sensitivity analysis of future draws to possible house price paths."

Okay, now here we go.

The FHFA offers three scenarios based on Moody's analysis. "Current Baseline", "Stronger Near-term Recovery" in house prices, and "Deeper Second Recession" house price paths.

The Current baseline assumes some "small remaining home price declines" that would result in a peak-to-trough decline of 34 percent, with the trough coming in Q3, 2011 and then an 8 percent price gain to the end of the forecast in 2013. GSE bill: $238 billion.

The Stronger Near-term Recovery assumes increased access to credit with peak-to-trough declines of 31 percent. The trough would have already happened in Q1 2009. Prices would go up 5 percent by 2013. I have to say I don't see how you can buy this one, given that we're already seeing the double dip in prices. GSE bill: $221 billion

The Deeper Second Recession assumes restricted access to credit, continued high unemployment and a reverse in the moderate rebound in home construction we saw in 2009. Peak-to-trough decline is 45 percent with the trough in Q1, 2012. From that trough, prices increase 11 percent through 2013. GSE bill: $363 billion.

Now before you get all red in the pocketbook, the good news is, "As time passes, Enterprise dividend payment on Treasury preferred stock make up larger portions of the draws."

That eases the pain to a worst-case scenario of $259 billion. Phew.

Questions? Comments? RealtyCheck@cnbc.com And follow me on Twitter @Diana_Olick

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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