UPDATE 3-US FHA's losses to swamp capital, audit finds

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JoeEifrid wrote:

“Republicans have worried the FHA could turn out to be a burden on taxpayers along the lines of Fannie Mae and Freddie Mac, the mortgage finance firms the government seized in 2008.

Those companies have soaked up almost $190 billion in taxpayer funds, although they are both now profitable.”

This article shows how absurd it was for the government to put Fannie and Freddie (FnF) into conservatorship. No bailout was ever needed. FnF had plenty of reserves to weather the storm. The treasury required FnF to borrow from the treasury through the issuance of senior preferred shares $1 billion dollars each just to be put into conservatorship. Then they required FnF to “borrow” more taxpayers dollars when ever their assets values dipped below their liabilities – or when they were technically insolvent. Several big companies are technically insolvent, like Delta Airlines and AutoZone. They pay their bills just fine, and FnF could have too until they got back to profitability. On top of having to get capital from the Treasury that they did not need, they were also required to pay the government a 10% dividend. This required FnF to get even more funds from the government as paying the dividend on occasions caused their assets to dip below their liabilities. FnF have paid over $50 billion in dividends for funds they could have got along without.

It gets better though. On August 17th the US government said FnF no longer has to pay the 10% dividend on roughly $190 billion. They now require FnF to hand over all of their profits starting in January. Looking at recent profits that would have the government earning nearly 20% in interest charges. Would one ever think that Uncle Sam would turn into a loan shark. The FnF shareholders have also never been given a plan to pay back the principle, not will they be able if the government confiscates ever dime they back.

FnF loan quality has always been better than the FHA’s. If the FHA is now just coming to a need to possibly tap the taxpayers, why wasn’t it expected that FnF couldn have done the same with their superior cash flow and lower delinquency rates. The shareholders are being robbed of their company. One can argue that the government should get out of the mortgage business, but the government should still respect the private individual ownership of Fannie and Freddie and allow the shareholders the ability to remove themselves from conservatorship. Conservatorship is to protect value, not to steal it.

Nov 15, 2012 8:36pm EST  --  Report as abuse
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