Fannie Mae and Freddie Mac may need another massive taxpayer bailout, according to a new Inspector General report which casts doubt on their future profit margins.
The federal housing finance agencies were bailed out by taxpayers after the 2008 financial crisis, in the form of a $188 billion Treasury buyout of shares. Although the agencies are technically unable to buy back those shares, they have paid the Treasury more than $163 billion in dividends since 2013.
In December the Federal Housing Finance Administration ordered Fannie and Freddie to again divert some of their profits to low-income housing funds — as they had done before the 2008 crisis. (RELATED: Fannie And Freddie Ordered To Subsidize Low-Income Housing)
But the FHFA report, titled “The Continued Profitability of Fannie Mae and Freddie Mac is Not Assured,” says that one-time events in 2013 and 2014 boosted their profits, and that ongoing mortgage market uncertainty could reduce their future profits. So, ” stakeholders should not presume continued profitability of the Enterprises,” the report warns.
A huge portion of the stakeholders are taxpayers, and in a worst case scenario, such as a repeat financial crisis, they could be on the hook for another bailout of up to $190 billion, the report states. “The mortgage industry is complex, cyclical, and sensitive to changes in economic conditions, mortgage rates, house prices, and other factors.” (RELATED: New Policy To Offer Cheaper Mortgages Economically Dangerous)
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