Well this was done in the middle of the night and the funding cap is no more. Looks like we are now going to support these failed institutions to an unlimited amount with an exposure of over $5 trillion (with a T) dollars. We are still making loans to people that really should not have one because of the lack of equity they put into the deal. If we are going to have a policy of home ownership in America then we should focus on creating jobs that can support a normal mortgage not providing financing to people who will struggle to own a home.
The Treasury Department has removed the $400 billion financial cap on how much money it will provide to the beleaguered mortgage giants Fannie Mae and Freddie Mac, a step taken to keep the companies from failing. So far, taxpayers have shelled out $111 billion to the pair.
Yesterday, Treasury officials said the cap would be replaced with a flexible formula. The goal is to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors.
Fannie Mae and Freddie Mac provide vital liquidity to the mortgage industry by purchasing home loans from lenders and selling them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion, or about half of all mortgages.
Without government aid, the firms would have gone broke, leaving millions of people unable to get a mortgage.
The biggest headwind facing the housing recovery has been the rise in foreclosures amid high unemployment. The Treasury’s latest move could allow Fannie and Freddie to play a bigger role in restructuring mortgages for troubled borrowers.
Analysis: This is going to cost the taxpayers dear. It looks like economic headwinds are coming back and that could push more mortgages into default and that would make the GSE’s have to tap the Treasury to make good on their bond payments.