Will taxpayers bail out Fannie Mae and Freddie Mac again?

At the height of the financial collapse in 2008, United States taxpayers were forced to bail out Fannie Mae and Freddie Mac, which came with a $200 billion price-tag. The Obama administration had utilized taxpayer subsidized loans by allocating enormous sums of foreclosed housing inventory from the two agencies and into bigger investment funds. At the time, Fannie and Freddie continued to boost their mortgage holdings.

Well, taxpayers could be on the hook for another bailout of the two housing finance agencies.

The Federal Housing Finance Agency Office of Inspector General said in a report that Fannie Mae and Freddie Mac could require further bailouts because risks are enhancing amid dwindling reserves.

In the internal watchdog’s report, it was warned that there is no assurance of any “future profitability, alluding to the fact that the two groups could post losses on their derivatives portfolios akin to what they had reported in the fourth quarter. Overall, additional Treasury investment could be needed.

Here is the executive summary from the report:

“Fannie Mae and Freddie Mac (collectively, the Enterprises) returned to profitability in 2012 after successive years of losses. Their improved financial performance is encouraging; however, their continued profitability is not assured. The mortgage industry is complex, cyclical, and sensitive to changes in economic conditions, mortgage rates, house prices, and other factors. The Enterprises have acknowledged in their public disclosures that adverse market and other changes could lead to additional losses and that their financial results are subject to significant vari ability from period to period.”

Congress could face tremendous pressure to revamp housing finance laws. However, there hasn’t been any type of legislation placed on the table, even though Fannie Mae’s CEO issued the same warning that its payments taxpayers will be the smallest since 2011, according to Reuters.

Investment Research Dynamics summarizes the situation: “Similar to when Fannie was plugged full of derivatives under former CEO Franklin Raines – who by the way had no clue how catastrophic the situation was and should be in jail but instead received a $100 million ‘you’re fired’ severance agreement – the Government has once again looked the other way while Wall Street unloaded another avalanche of derivatives onto FNM/FRE.   Once again the Taxpayers will pay for this.”

Of course, the U.S. government is trying to create another housing bubble by mimicking its behavior from prior to the housing collapse a few years ago. As we reported, the Fannie and Freddie announced it’d be reducing its minimum down payment requirement to three percent, while the Federal Housing Agency (FHA) diminishing its insurance payment rates.

“Many of these weak loans will, in turn, be securitized and traded on Wall Street. This is the hazardous cycle that led to the financial crisis,” warned Paul Sperry, a media fellow at the Hoover Institute. “The administration, with help from the media, has convinced the public that greedy Wall Street banks were to blame for the disaster, not Fannie and Freddie and their ‘mission’ regulators in Washington.”