Fannie Mae: Now How Much Would You Pay?

It seems like it was just five days ago that you had to pony up another $10.6 billion for the government-owned mortgage guarantor Freddie Mac, after the former GSE reported an $8 billion loss.

I hope you got your money's worth, because today Freddie's moronic fraternal twin Fannie Mae is hitting you up for another $8.4 billion, having managed to lose more than $11.5 billion in the first quarter—plus a $1.5 billion dividend it paid to the Department of the Treasury for assistance, bringing its total lose in the quarter to $13.1 billion.

The bad news is that that's the good news. Fannie lost nearly twice as much—$23.2 billion—in the first quarter of 2009. All told, the failed mortgage underwriter lost a whopping $72 billion last year.

The worse news is that there is no conceivable end to these losses. In their mania to avoid letting real estate values reach market-clearing levels, the Bush and Obama administrations have effectively made the entire American home mortgage industry into a de jure government operation. All but a tiny fraction of mortgages in the United States are now taxpayer-guaranteed. More than half of the Federal Reserve Bank's portfolio now consists of mortgage-backed securities.

And defaults on those mortgages are not stopping. There was a slight decline in Alt-A defaults in February, and California also saw defaults drop a tiny bit during the first quarter, but the default rate is still up year-over-year. The taxpayers are on the hook for 96.5 percent of those defaults. First American CoreLogic says 28 percent of all mortgages have near-negative or negative equity. And even if a jobless economic recovery so anemic it's not clear it should be called a recovery at all could somehow get a portion of bad borrowers back on their feet, it can't do anything to reinflate house prices, which is the only way the default tide can be reversed.

But don't take my word for it. Take Fannie Mae's [pdf]:

Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future. As a result of these factors, there is significant uncertainty as to our longterm financial sustainability.

We can't go on like this. Leaving taxpayers on the hook for this continuing disaster isn't just unfair. It's economically ruinous. And nobody in the Treasury Department, the Fed, or the administration has anything resembling an exit strategy.