Thursday, October 21, 2010

The Fannie-Freddie Problem is not as severe as the headlines would suggest

Page 10 of the FHFA report, gives forward expected losses under three scenarios.  The third is really awful--it assumes a further reduction in house prices by 1/4, which would be a lot.  But under the other two scenarios, the net cost to taxpayers (draws less dividends owed to Treasury) would be $6 to 19 billion.  This is real money, but hardly cataclysmic.  It does suggest that the vast majority of the losses are already behind us.