Issuing an executive order on Christmas eve stating that the Treasury would cover Fannie and Freddie’s losses until 2012, removing the prior cap that was in place limiting spending to $200 billion each.
The Republicans are claiming that the timing of this executive order was a planned attempt to keep it off the front page. Rep. Spencer Bachus of Alabama stated, “It was done that way to prevent the general public from taking note”. Proponents of the action are claiming that if they waited until Dec 31st they would have had to get Congressional approval for the “uncapping”, and this public discussion may have brought fears to an already unstable market.
At the end of 2009, it was reported that Fannie Mae had received approximately $60 billion dollars in bailout funds, and Freddie Mac had received $51 billion. Mortgage analysis estimated that the original $200 billion dollar caps would have been more than enough to cover the predicted losses for the next three years. The recent “uncapping” is intended to reassure the market that additional assistance is available to these two giants.
This open-ended fund dispersing is not being done without calculated investment markers. The Treasury is receiving preferred stock that pays 10% dividends. They also have warrants that instruct them to acquire 80% of the common shares of each company.
The housing market crash has cost Americans a great deal on many different fronts. The obvious hits are to the homeowners on main street America, but the amount of damage that has been done will be measured for decades to come. It is estimated that every household has essentially committed $3,800 to both Fannie Mae and Freddie Mac. That number is small when you measure it against the home that you may have personally just lost. This battle will be waged for years to come. The market will only stabilize when fears and government assistance wane away and the waters settle once and for all.
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