Bank House Foreclosures, Other Housing Problems Spilled Over to GSEs

by on Foreclosure Crisis

With the number of bank house foreclosures continuing to rise, several U.S. legislators have turned their attention to government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae in an effort to unveil the role of the mortgage giants in the ongoing foreclosure crisis.

Republican Representatives Darrell Issa and Jim Jordan have called on the House of Representatives to expedite hearings that would investigate Fannie Mae and Freddie Mac foreclosures. The two legislators are critical of the taxpayer bailout of the GSEs, claiming that it would become the most expensive action in relation to the foreclosure crisis.

The U.S. government took over the two mortgage firms in September 2008 amid escalating problems of foreclosures. A little over a year later, support was renewed by the Treasury by providing credit to the mortgage holders for an additional three years.

Recently, Fannie Mae reported a loss of more than $16 billion for the fourth quarter of 2009. The enterprise has requested the Treasury Department to provide $76.2 billion of credit assistance to recover from the troubles caused by Fannie Mae foreclosures.

The disclosure from Fannie Mae regarding its losses has added to concerns over the huge amount of mortgages that both GSEs hold. Supporters of both have argued that most private markets have ceased operations, which resulted in huge numbers of bank house foreclosures and other foreclosure-related problems; and that this, in turn, led to the government relying too much on the GSEs.

Meanwhile, Freddie Mac reported a fourth quarter loss of more than $7 billion. The GSE has requested help from the government to cope with increasing loan defaults and additional losses. The financial problems facing the two mortgage companies have added to legislators’ worries as the list of bank owned homes also continue to get longer.

The huge number of bank house foreclosures and the continuous rise of distressed property numbers have resulted in the federal government putting too many responsibilities on the shoulders of the two mortgage giants, some market observers have claimed. The amount of mortgage held by both Freddie Mac and Fannie Mae had been staggering and plans are being developed to lower the number of mortgage commitments held by the GSEs.

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