Fannie And Freddie Aren't Making It, Despite Infusion Of Unlimited Cash

Posted: Feb 10, 2010 10:04 AM

Fannie and Freddie were originally allotted $200 billion each for financial recovery. But the government did away with that limit, allowing them unrestricted access to funds. So far, they've each taken $111 billion, with no end in sight.

The Wall Street Journal says the Administration wants it this way for two reasons: 1) If Fannie and Freddie go down, millions of Americans loose their homes, and 2) It's politically expedient.

But Fannie and Freddie, and the Administration, is finding out that unlimited government cash isn't a guarantee of success. First of all, there's a ton of houses that need to be unloaded — homes that were foreclosed upon, and now need to go up on the auction block. Selling so many homes at once would depress their value, potentially leading to huge losses. So far, no one has figured out what to do with these homes.

Second, the unlimited government money comes with a ton of strings — most notably, a loan-modification effort, called the Home Affordable Modification Program, or HAMP. HAMP requires Fannie and Freddie to work towards reducing payments for struggling borrowers. But as any small businessman is well aware of, reducing payments cuts into the bottom line.

It's already known that these two companies are now wholly government owned, and that the government is taking extreme measures to make sure they stay that way. The only question is whether unlimited infusion of cash — given by the taxpayers — is even enough to hold up a "company" in a capitalist system.