Freddie Mac requests another $1.8 billion in bailout money for a total of 148.2 billion tax payer dollars

Posted on August 9, 2010


Government-controlled mortgage buyer Freddie Mac is asking for an additional $1.8 billion in additional federal aid.

Freddie Mac said Monday it lost $6 billion in the April-to-June period. The company is required to pay a 10 percent annual dividend to the Treasury Department on money it has received from the government. That made up $1.3 billion of the company’s second-quarter losses.

The company lost $840 million in the same quarter last year.

The government rescued Freddie Mac and sibling company Fannie Mae from the brink of failure nearly two years ago. The new request means they have needed $148.2 billion to stay afloat, about $63.1 billion of which is being used by Freddie Mac.

During the housing boom, Fannie and Freddie faced political pressure to expand homeownership and competitive pressure from Wall Street to back ever-riskier loans. When the market went bust, defaults and foreclosures piled up, and the government had to take them over.

That would be the CRA, the act that the Clinton administration and Congress strengthened in 1997-8 in order to push lenders into making riskier loans to artificially increase the number of mortgages being sold.  But the CRA is only part of the story.  Congress also allowed Fannie and Freddie to issue mortgage-backed securities to lessen their risk on buying subprime loans, which created a huge demand for subprime paper and encouraged people to buy beyond their means.  The collapse of those bonds created the global financial collapse and forced Fannie and Freddie into receivership.

Posted in: Economy