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CBO ramps up estimated cost of Fannie Mae, Freddie Mac

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Fannie Mae and Freddie Mac will cost taxpayers $51 billion between 2012 and 2021, according to a new estimate released by the Congressional Budget Office Wednesday. The CBO increased its projection by $9 billion from its estimate released in June. Since placing the government-sponsored enterprises in conservatorship in 2008, the Treasury Department sent $170 billion in subsidies through the second quarter, of which $27.9 billion has been paid back. The Treasury sent $103.8 billion to Fannie Mae, with $14.7 billion returned. Another $66.2 billion went to Freddie with $13.2 billion of that paid back. The yearly payments to Fannie and Freddie should go down, according to the CBO. The nonpartisan bureau estimates the Treasury will send $5 billion to both mortgage giants by the end of 2011, down from $40 billion spent on them in 2010. In 2012, the CBO estimates $7 billion in bailouts, which should remain the peak until 2021. The CBO said the drop in 2011 was "mostly because the two entities are expected to recognize fewer losses on their mortgage investments and guarantees." But the outlook for the long-term mortgage market remains tentative. Fannie, Freddie and the Federal Housing Administration guaranteed or financed 95% of new mortgages in 2011. Demand remains dim despite mortgage rates still hovering at levels not seen since the 1960s. The CBO expects rates to remain low for the next several years. As a result, the lack of demand and the CBO-estimated 2.2 million vacant homes sitting on the market continue to keep prices depressed – which will continue to gouge the GSEs. The CBO estimated prices will not begin to sustain an increase until the second half of 2012. Not until the end of 2013 will the Federal Housing Finance Agency house price index reach levels measured in 2004, according to the CBO. Congress will likely remain gridlocked on what to ultimately do with Fannie and Freddie until 2013, even though some legislation for a future housing finance system has been introduced. "Nevertheless, there are some signs of improvement in private mortgage lending, such as growth in originations of jumbo loans over the past several quarters — albeit still at low levels — and a noticeable narrowing of the difference in interest rates between jumbo and conforming loans," the CBO said. Write to Jon Prior. Follow him on Twitter @JonAPrior

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