Believe this or not, Fannie Mae and Freddie Mac could cost up to $1 trillion dollars to fix.
Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.
“One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan.
An analyst gives a 25% probability of $1 trillion in taxpayer costs. Last December, Fannie and Freddie got an unlimited bail out. In 2009, the CBO estimated Fannie and Freddie added $291 billion to the budget deficit. In Q1, 2010, Fannie Mae lost $11.5 billion.
Fannie Mae and Freddie Mac are not included in the Financial Reform bill. Why is Congress and this administration ignoring the elephant in the room? One possible motive might be foreign governments hold $908 billion in Fannie and Freddie bonds. Another is the federal government is the residential real estate market.