Money Matters - Simplified

Fannie, Freddie may require less federal aid if recovery continues

If markets fail to recover, or falter again, the bailout cost could reach $363 billion, the Federal Housing Finance Agency predicted.

The government studies made public on Thursday revealed that the two mortgage companies Fannie Mae and Freddie Mac may require moderately less federal aid if the economy continues to recover at the same pace but any slowdown in the economy could mean that the government will have to shell out nearly double the amount.

The two mortgage companies virtually became government wards after following major loss in 2008.

The Federal Housing Finance Agency conducted three stress tests on the companies and made public its findings.

Estimated federal aid needed
If the housing market recovers quickly,Fannie Mae and Freddie Mac will require combined $73 billion in addition to $148 billion they already have received over the next three years.

If markets fail to recover, or falter again, the bailout cost could reach $363 billion, the Federal Housing Finance Agency predicted.

The U.S. administration has welcomed these projections saying that these reflect that companies have discontinued the practices that led to losses in the past and there is no trouble with the loans brought in the recent years.

The federal agency, which looks after the two companies, has made these figures public, “to give policy makers and the public useful snapshots of potential outcomes for the taxpayers support of Fannie Mae and Freddie Mac.”

Administration welcomes report
The U.S. administration has welcomed these projections saying that these reflect that companies have discontinued the practices that led to losses in the past and there is no trouble with the loans brought in the recent years.

Under Secretary of the Treasury Department, Jaffery A. Goldstein said in a statement, “In the most likely economic scenario, nearly 90 percent of the losses at Fannie Mae and Freddie Mac are already behind us.” He however added that initial success should not distract from the pressing requirement so that the tax payers are not punished in future.

Also, both the companies are likely to recover billion of dollars from banks by coercing them to buyback the mortgages and mortgage-backed securities that are based on flawed documents.

The federal agency has projected that Freddie Mac is expected to return to profitability if the economy continues to recover.