The Congressional Budget Office estimated Fannie Mae and Freddie Mac will need another $42 billion in subsidies from 2012 through 2021, based on the latest projections from first quarter data. Since the two firms went into conservatorship, the Treasury Department has sent $154 billion in support. They have paid back $24 billion in dividends, resulting a net bailout so far of $130 billion, according to the CBO testimony before Congress this week. Under the initial conservatorship agreements, the assistance was capped at $200 billion, but that was raised to $400 billion in December 2009. Beginning in 2013, the Treasury will continue to maintain their solvency using the remaining balance of the $400 billion. And there is no time limit, according the CBO. As a result, the government-sponsored enterprises along with the Federal Housing Administration have been able to prop up the sputtering housing market. In 2010, the GSEs owned or guaranteed half of all outstanding mortgages in the U.S. and financed 63% of the loans originated that year. Including the 23% of mortgages insured by the FHA and other agencies, roughly 86% of the housing market in 2010 carried a federal guarantee. The CBO said new Fannie and Freddie business poses less risk, but the damage done from previous years will continue the need for their bailout. “The average subsidy rate on the GSEs’ new business has fallen since the peak of the financial crisis, and it is expected to decline further in coming years as the housing market recovers,” the CBO said. A slew of GSE reform bills came from House Republicans. But their 15 new bills do not provide a replacement once the companies are wound down. Only two bills introduced in Congress provide a replacement. One, a bipartisan bill introduced in May establishes a hybrid public-private system with a catastrophic fund. Another introduced by Rep. Scott Garrett (R-N.J.) establishes framework for an expanded covered bond system. The CBO warned Congress that whatever it decides to do, it cannot return to the old system. “The weaknesses inherent in the pre-crisis model may argue against returning to that model after the GSEs’ conservatorship ends,” the CBO said. “Because the federal guarantee was implicit rather than explicit, the costs and risks to taxpayers did not appear in the federal budget. That lack of transparency made it more difficult for policymakers to assess and control the GSEs’ costs and risks.” But any new system will also leave taxpayers on the hook, even covered bonds, the CBO said. “Whatever model for the secondary market is ultimately adopted, the expected losses on the GSEs’ existing business will largely be borne by taxpayers, because private investors would not assume those obligations without compensation,” the CBO said. Write to Jon Prior. Follow him on Twitter @JonAPrior.
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