Watch Out Taxpayers: You Could Be On The Hook (Again) If Another Housing Crisis Hits

Forbes - September 14, 2015 - September 15, 2015

By Clark Packard

When the housing financing market collapsed seven years ago, taxpayers provided Fannie Mae andFreddie Mac with $188 billion in equity in exchange for senior preferred shares in each of the massive Government Sponsored Enterprises (GSEs), which were then put into government conservatorship. Today taxpayers are largely free and clear from the bailout they were forced to underwrite, but what happens if another housing downturn hits America? Unless Congress acts on remedies, taxpayers could once again be hit with a huge liability.

The root of this problem can be traced to a decision several years after the housing finance crisis. The GSEs’ senior preferred shares initially guaranteed a 10% annual dividend. In 2012, however, the Obama administration amended the agreement to require virtually all of Fannie and Freddie’s net earnings be sent to the Treasury. After posting second quarter earnings of $4.6 billion and $4.2 billion respectively in early August, Fannie and Freddie will send the Treasury a combined $8.3 billion this month.

Read the full article: Watch Out Taxpayers: You Could Be On The Hook (Again) If Another Housing Crisis Hits