Fannie And Freddie Are Headed For Another Bailout

Taxpayers pumped over $200 billion in to Fannie Mae and Freddie Mac after the financial collapse of 2008. While the Obama Government used taxpayer subsidized loans to move large quantities of foreclosed housing inventory from the FNM/FRE and into big investment funds, FNM/FRE were busy ballooning their mortgage holdings – again.

Now the Inspector General’s Federal Housing Finance Agency has issued a warning that both FNM/FRE are headed for another bailout, which is no surprise to me:

“Future profitability is far from assured,” Federal Housing Finance Agency Office of Inspector General said in a report, pointing out that the firms could again chalk up losses on their derivatives portfolios, similar to those they reported in the fourth quarter. “This increases the likelihood of additional Treasury investment,” the report stated. – Reuters (LINK)

Similar to when Fannie was plugged full of derivatives under former CEO Franklin Raines – who by the way had no clue how catastrophic the situation was and should be in jail but instead received a $100 million “you’re fired” severance agreement – the Government has once again looked the other way while Wall Street unloaded another avalanche of derivatives onto FNM/FRE. Once again the Taxpayers will pay for this.

This is not a ‘warning” – this is a “get ready here it comes” statement. The fact is that most of FNM/FRE’s “profitability” has been driven by the same fraudulent “mark to model” accounting that has generated most the big bank profits since 2009.

And the Government used this fraudulent accounting to suck money out of FNM/FRE. The “improved” balance sheet has enabled both FNM/FRE to issue debt to investors. The money raised has been used reload their mortgage holdings and for dividend “payback” payments to the Treasury.

FNM’s CEO warned of the possibility of another bailout in February, after announcing FNM’s smallest dividend payment to the Treasury in more than four years. This is not a warning – it’s an inevitability. The housing market is set to re-collapse, which will blow-up both Fannie and Freddie – once again.

You can read more from Dave Kranzler at his site Investment Research Dynamics, where this article first appeared.