Since the government seized control of Fannie Mae and Freddie Mac in the fall of 2008, the two have spent more than $160 million defending the firms and their former top executives in civil lawsuits.
According to a report in The New York Times, the cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.
The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred over the past decade.
Since the GSEs have been propped up using taxpayer money, that means the government has indirectly been paying their legal bills.
Most large corporations will pay the legal expenses of former executives if the lawsuits are tied to duties performed while at the company. In some cases, companies take out insurance policies to pay for legal costs.
A former regulator that the taxpayer money spent on Fannie Mae and Freddie Mac cannot be recouped. The $150 billion or so that U.S. taxpayers have spent to prop up Fannie Mae and Freddie Mac is "gone and won't be coming back," according to former Federal Home Loan Bank Board (FHLBB) member Larry White.
Speaking at a GSE forum in Washington, White, who served as a top regulator during the S&L crisis of the 1980s, said the money the Treasury has spent on the GSEs will "not be recovered like the [Troubled Asset Relief Program]," a reference to certain investments the U.S. Treasury made in ailing banks and other companies that have been repaid.
White also believes the government should move to liquidate the mortgage portfolios of the two companies.
The GSEs have been steadily losing money over the past few years and are due to report their fourth quarter and yearend results at the end of February.
The White House is expected to unveil its recommendations on what to do with Fannie and Freddie when the administration releases its new fiscal budget.
White is now a professor at New York University. The FHLBB became the Office of Thrift Supervision, which is now part of the Comptroller of the Currency.
In other GSE news, Rep. Randy Neugebauer, the new chairman of the House Financial Services Oversight Subcommittee, believes the guarantee fees Fannie Mae and Freddie Mac charge its seller/servicers are underpriced and should be increased.
Speaking at a University of Maryland forum on the future of the GSEs, the Texas Republican gave a broad overview of how he would like to put most of the housing market in the hands of the private sector.
Without giving specific price targets, he said g-fees are currently "under market" and clarified later to reporters that "they should be increased gradually." (In general, seller/servicers pay g-fees of 20 basis points or more per loan, though it can vary from lender to lender.)
He also said GSE loan limits should be decreased and that jumbo securitizers would fill the void.
But during a Q&A with the audience, one loan officer who works the Northern Virginia market told the Congressman that if the $729,750 loan limit is lowered in the Washington, D.C. metro area it would potentially halt homes sales. (The LO works for a top five ranked funder.)
Neugebauer raised the issue of "when the best time is to start the process," adding that "we need to establish the principles and rules now and let the market build to it."
A former home builder and mortgage executive, the Congressman said he believes in a "private sector" solution to the GSEs, saying at some point investors "will buy residential mortgages again," hinting that one way to get them to purchase product is by offering a higher yield.
The Texas Republican also said that in his opinion the government is wasting its time with loan modification programs and that such foreclosure prevention programs should "stop right now." He told National Mortgage News, however, that it's fine for servicers to continue with their private sector mods. "[Home Affordable Modification Program]," he said is "just postponing the inevitable."
