Fannie, Freddie seen tapping more taxpayer funds

WASHINGTON (Reuters) - The Obama administration on Monday said it expected Fannie Mae and Freddie Mac’s finances to weaken further but failed to offer any vision for the future of the mortgage finance giants as analysts had expected.

The White House said Fannie Mae FNM.NFNM.P and Freddie Mac FRE.NFRE.P will tap a total of $188 billion in government funds by October 2011, up from the $111 billion they have already drawn. That does not count trillions in liabilities for the government-controlled firms.

Early last year, the administration said it would propose a new structure for the money-losing companies in President Barack Obama’s fiscal 2011 budget plan, which was released on Monday.

But the budget blueprint devoted only one sentence to the future of the two government-sponsored enterprises, or GSEs:

“The administration continues to monitor the situation of the GSEs closely and will continue to provide updates on considerations for longer term reform ... as appropriate.”

Housing and Urban Development Secretary Shaun Donovan told reporters a plan would be “forthcoming very shortly.”

Fannie Mae and Freddie Mac, which play a role in funding three-quarters of all U.S. residential mortgages, came under government control in September 2008 when they received a massive bailout that gave the government a 79.9 percent stake.

Late last year, the administration extended an unlimited credit line to the two companies through the end of 2012. Previously, the credit was capped at $400 billion.

Analysts had expected the budget plan to lay out scenarios for the future of the firms or outline broad principles the administration would use when deciding their fate.

Howard Glaser, a mortgage analyst in Washington, said the lack of any detail “is a signal that they are going to defer any decision about the future of Fannie and Freddie until this financial crisis is in the rear-view mirror.”

“There isn’t going to be legislative action this year,” he said.

U.S. House Financial Services Committee Chairman Barney Frank last month said the two firms should be “abolished in their current form,” although he provided no details on how he thinks they should be restructured.

Obama’s budget plan said that in the current fiscal year the two companies would draw a total of $69 billion from their Treasury credit line, while paying back $12 billion. In fiscal 2011, which begins October 1, the administration forecast they would draw another $23 billion and pay back $18 billion.

The budget blueprint assumes the firms will pay back Treasury at a rate of $6.73 billion per year, starting in fiscal 2012, and running through the forecast horizon period, which ends in fiscal 2020.

The budget proposal continues to keep trillions of dollars in Fannie Mae and Freddie Mac’s liabilities off the budget, although White House Budget Director Peter Orszag had advocated putting them on the budget when he was director of the nonpartisan Congressional Budget Office.

Analysts say that fiction -- not counting the trillions in outstanding liabilities -- cannot be sustained indefinitely.

Editing by James Dalgleish