Freddie Loses Big Bucks, FDIC Has A New Plan

A couple things on the housing front, neither surprising.

As reported by Reuters, Freddie Mac reported a loss of $25.3 billion today. This tidy sum puts Freddie in a negative equity situation thus necessitating a capital infusion from the Treasury. The company's regulator has already submitted an invoice to Treasury for $13.8 billion to get the company back to a positive number.

All of this begs the question as to why we are supporting two of these giant cash sucking machines. Why don't we get rid of one of them and reduce some overhead? They're mirror images of one and other so it's not like theirs some special expertise that one needs that the other doesn't have. Just a thought.

On a more amusing (sort of) note, Sheila Bair, Chairwoman of the FDIC, proposed her own mortgage modification scheme. Ms. Bair made no secret of her disdain for the plan rolled out earlier this week by Fannie and Freddie. Her plan would be modeled after the program she put in place at IndyMac. Among other things it would pay servicers $1000 for modification expenses and have the government share in 50% of any redefault losses. The IndyMac plan also calls for principal reductions which was not a part of the F&F plan earlier this week.

Ms. Bair has being beating the drum on modifications for at least nine months now. It's kind of hard to figure out what the motivation might be, though a cynical person might suggest she's angling for a bigger role in the Obama administration. So far her success with IndyMac's portfolio has been modest at best. Her report on results delivered a couple weeks ago indicated that only 3500 borrowers out of a pool of 60,000 who are eligible to participate in the FDIC plan have even bothered to respond to overtures.

I'll repeat a theme-probably not for the last time-that we have a bunch of people running around Washington absolutely no clue as to what to do save propose one program after another with no regard whatsoever for the ability of the country to pay for it.

Tom Lindmark