Fannie, Freddie Unlikely to Repay Government Funds

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Mortgage giants Fannie Mae and Freddie Mac are unlikely to be able to pay back all of the funds the government has injected into the firms in order to keep them solvent, Federal Housing Finance Agency Director James Lockhart said July 30.

“My view is that some assets in the senior preferred will have to be left behind as they come out of conservatorship. That will mean that some of the losses will never be repaid,” Lockhart said in response to a question at a forum in Washington D.C.

The government has agreed to inject $200 billion into both Fannie and Freddie, and so far $85 billion of that amount has been drawn on. Lockhart noted that additional capital injections will be necessary over the next 12 months.

Lockhart pointed to three possible options for the future structure of Fannie Mae and Freddie Mac—government agency, improved GSE or fully private firm. The administration has announced it will make a proposal to Congress in February 2010 on the roles of Fannie, Freddie, and the Federal Home Loan Banks in the marketplace.

Meanwhile, Lockhart called for a clearer demarcation of the respective roles of the federal government and the private sector in the secondary mortgage market, noting that any federal risk-bearing should be provided explicitly and at actuarial cost.