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Freddie Mac wants $6 billion

By Judy Martel · Bankrate.com
Thursday, November 3, 2011
Posted: 3 pm ET

Freddie Mac, the government-controlled mortgage company, is asking for an additional $6 billion from taxpayers after experiencing a third-quarter loss of nearly $2 billion more than the third quarter of last year.

According to the Associated Press, the company's losses have increased over the past year because many homeowners have refinanced and are now paying lower interest rates. Another reason is that when homeowners default, failing and bankrupt mortgage insurers pay out less money. PMI Group, a private mortgage insurer, was seized last month by regulators and is now paying claims at 50 percent.

Since the government bailed out Freddie Mac and Fannie Mae in 2008, taxpayers have spent nearly $170 billion to keep them afloat. If taxpayers keep supporting the two companies through 2014, it is estimated to cost them up to $50 billion.

The Obama administration has felt the pressure to shut down Fannie and Freddie and encourage the private mortgage sector to step in, but that process could take years. Along with the Federal Housing Agency, or FHA, the two companies guaranteed about 90 percent of home loans in the past year. Without the government-backed guarantee, mortgage rates could go higher as private companies absorb the risk.

What do you think about Freddie Mac's request for more aid: Should the taxpayers pony up?

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2 Comments
Tom
November 04, 2011 at 8:29 am

Why would refinancing cause them such catastrophic losses? As soon as a loan is refinanced, it is being repaid in full. The only money they miss out on is interest...

John Q Taxpayer
November 04, 2011 at 7:22 am

Fannie and Freddie should have gone the way of the dodo a long time ago. This is a great example of why the government should not get involved in business.