No Hope for Fannie, Freddie Shareholders

The lifeline has a potentially high cost. Any future appreciation in the value of the home or any equity created at the beginning of the new mortgage has to be shared with the government.

Federal Housing Finance Agency Director James Lockhart, who oversees Fannie and Freddie, said the Hope for Homeowners funds will be allocated unless it affects the capitalization of the GSEs. Besides, if Fannie and Freddie don't make the payments, the Treasury will. In fact, the Treasury has already issued $29.5 million in Hope Bonds to fund the start-up.

But it isn't clear why an additional program is necessary. Lockhart said in Sept. 25 testimony to Congress that Fannie and Freddie would be allowed to increase their portfolios up to $850 billion over the next 15 months. Isn't that enough money to provide for these loans without the 4.2-basis point haircut?

Moreover, the federal government is now considering using funds from the $700 billion Troubled Asset Relief Program, or TARP, approved by Congress earlier this month to buy up and rework mortgages for troubled borrowers, The Wall Street Journal reported on Oct. 23. The Bush administration also is mulling a $40 billion plan to provide lenders financial incentives to rework unaffordable home loans, the Journal said.

Secondly, how did this item remain in the GSE reform package as late as July, when Fannie and Freddie were fighting for their very survival and the housing landscape had changed dramatically?

Paige's concern is that these programs are creating new government expenditures that will be difficult to get rid of once the current crisis is massed.

"Once a program gets started, it never goes away," she said. "It's like a weed. I can count on one hand the number of government programs that ever get shut down, once begun."

The shareholders of Fannie Mae haven't been asked whether that 5% or that 4.2-basis points could be used elsewhere. They may prefer that money to go toward the dividends that were cut.

Sadly, there is no hope for Fannie Mae shareholders.