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Fannie and Freddie Bailout Could Cost Hundreds of Billions More

Courtesy - ABC News(WASHINGTON) -- The federal regulator overseeing mortgage finance giants Freddie Mac and Fannie Mae released a report Thursday showing a potential taxpayer bailout that could cost up to $363 billion in a worst-case scenario where home values continue to fall.

The two mortgage giants have been under government conservatorship since September 2008, when the housing collapse threatened to bankrupt the firms with billions in losses as people stopped paying their mortgages. To date, the treasury has loaned Fannie and Freddie $148 billion to keep the afloat.

The Federal Housing Finance Agency says it modeled three scenarios to find out how much more the treasury might be expected to pay.

Under the best case scenario -- where home prices stabilize and start to go up in the next few quarters -- Fannie and Freddie would need an additional $73 billion. Under the worst case -- where a second dip into recession pushes home prices down another 25% -- the government would need to provide an additional $215 billion.

“These projections are intended to give policymakers and the public useful snapshots of potential outcomes for the taxpayer support of Fannie Mae and Freddie Mac,” said Edward DeMarco, acting director of FHFA. “These are not predictions; the results reflect the potential effects of a limited set of hypothetical changes in house prices, a key variable driving credit losses for the Enterprises.”

One interesting note -- these “loans” from the treasury in the form of preferred shares come with a steep price. They have a 10% dividend payment which make up, in the worst case scenario more than $100 billion of the costs.

The administration is set to present a plan for resolving the Fannie and Freddie conservatorship early next year.

Copyright 2010 ABC News Radio

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