The profits keep coming at Fannie Mae and Freddie Mac, the government-backed companies that work their financial magic so folks like us can get 30-year, fixed-rate mortgages. This week, Freddie said it made $524 million in the first three months of this year; today, Fannie reported $1.9 billion. And when Fannie and Freddie profit, taxpayers profit, too. Kind of. That’s because when millions of high-risk mortgages started failing in 2008, the government stepped up with $187 billion to keep Fannie and Freddie in business. They’ve since paid us back and put another $43.3 billion into Treasury coffers, helping us balance the federal budget. In fact, Fannie and Freddie will keep writing us checks as long as they’re making money.
Taxpayers win, right? Not really, because the deal works both ways. Profits are weakening, and Fannie and Freddie might be even more fragile today than they were in 2008 because they have almost no capital cushion. Because of that, a ripple in the housing market could leave us on the hook for another bailout. For that we can blame Congress and the White House, which never got around to fixing the companies after the last mortgage meltdown. That indifference could cost us as much as $157.3 billion for a second bailout if the economy really goes south.
OK, that’s a highly unlikely worst-case scenario, but given that we’re six years past the recession and Washington is still dawdling, maybe a little hyperbole is in order.