Fannie and Freddie Bailout to Cost Taxpayers $25bn

Does the term 'hemorrhaging money' mean anything to you?

It should, says Kate Incontrera in The Daily Reckoning.

Because the housing bill approved by Congress yesterday will cost taxpayers $25 billion in fiscal years 2009 and 2010, according to the Congressional Budget Office. And it could wind up costing up to $100 billion in the long term.

The bill is also a major threat to privacy, according to Desidooru Saloon's Dave Gonigam... 

The big news this morning is that President Bush has dropped his threat of a veto for the housing bill that will bail both Fannie Mae (FNM) and Freddie Mac (FRE) out, and also offer relief to homeowners that have gotten in over their heads and now run the risk of foreclosure.

CNNMoney.com reports that the legislation would allow the Federal Housing Agency to insure up to "$300 billion in new 30-year fixed rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write-down their loan balances to 90% of the current appraised value of their homes...The cost of the FHA program - which would begin on October 1 and be in place for just a few years - would be funded by fees from Fannie and Freddie."

And of course, since Fannie and Freddie are seriously ill-equipped to offer up those kinds of funds at the present moment, the bill would allow the Treasury broad powers that would provide the mortgage giants with liquidity and a "capital background" - basically an unlimited line of credit.

It is generally understood that this will leave U.S. taxpayers with a gigantic bill to pay - in fact, yesterday the Congressional Budget Office estimated the cost of the "rescue" at $25 billion, and said there is a chance that it could end up costing the U.S. government $100 billion in the long term.

Source: Fannie and Freddie Say Goodbye to Veto