Another Plea From Fannie Mae
The mortgage ward of the state needs $3.7 billion from taxpayers
Fannie Mae is again going hat in hand to taxpayers after announcing a $6.5 billion quarterly loss on Wednesday. Washington should take this news as a kick in the keister to finally start winding down the mortgage giant and its busted brother, Freddie Mac . But the Trump Administration seems to be moving in the opposite direction.
When the housing mania turned to panic in 2007-08, Fan and Fred called in their implicit government guarantee, at a cost of almost $190 billion. The pair, now in “conservatorship,” have since paid back that amount, and their profits continue to flow to the Treasury—as they should, given that the taxpayer guarantee hasn’t been revoked.
The trouble is that Fan and Fred were left in limbo. Hedge funds bought up their shares, betting they could pressure Washington into bringing back the old business model of public risk and private reward. Investors filed lawsuits claiming that the government was illegally seizing Fan and Fred’s earnings.
Fannie’s latest dip into the Treasury will be dismissed as an accounting fiction—and maybe so, but it’s a useful one. Congress’s recent tax reform decreased the value of tax deferrals on Fannie’s balance sheet, resulting in a one-time charge of $9.9 billion. Because Fannie hasn’t been allowed to keep a large capital buffer, it now needs a $3.7 billion infusion. While this is hardly ideal, at least taxpayers are getting the profits along with the losses.