Thursday, February 28, 2008

Taxpyers Will Definitely Foot the Housing Bill

Yesterday we learned the Fannie and Freddie were having their investment cap increased. This will allow them to purchase more mortgages on the open market. Yesterday we also learned that Fannie reported a nasty loss in the fourth quarter of last year.

Now Freddie has joined the loss chorus:

Freddie Mac reported a loss of $2.45 billion for the fourth quarter amid a continuing surge in home-mortgage defaults.

The government-sponsored mortgage investor also warned of a further jump in losses stemming from those defaults this year and next as more borrowers fall behind and home prices fall in much of the country. But Buddy Piszel, chief financial officer, said in an interview that Freddie doesn't expect to need to raise capital again this year unless conditions get "dramatically worse." The company raised $6 billion late last year through a sale of preferred stock.

So of course -- let's expand their ability to take on bad loans.

Bottom line -- Freddie and Fannie are quasi-public entities. If they have deepening problems they will eventually come to the US Congress for money -- which Congress will be forced to give for purely political reasons. Don't be surprised if that eventually happens.