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Taxpayers Gain $25 Billion from Housing Crisis Program

Written By:
March 21, 2012 at 12:40 AM

tim geithner

An initiative, which actually started under the Bush administration, provided unlimited financial support to Fannie Mae and Freddie Mac during critical times of the financial crisis in 2008. Uncle Sam bought billions of dollars worth of mortgage-backed securities (MBS), which provided much needed liquidity in the mortgage market. The infusion of funds restored a bit of confidence in the market.

The MBS program also made the money available for borrowers to obtain home mortgages during the financial crisis. The investment earned a $25 billion windfall for American taxpayers.

Analysts Thought Bonds Would Produce a Loss

In 2008, mortgage interest rates increased in direct response to the financial crisis. The financial meltdown caused uncertainty around the globe. Many global investors worried about the safety of US mortgage bonds. During 2008 and 2009, the United States Department of the Treasury purchased $225 billion dollars worth of mortgage bonds. The money, which flowed into the mortgage market, proved critical in helping to keep interest rates on home mortgages low.

Subsequently, the Federal Reserve Bank bought a total of $846 billion in mortgage-backed securities. About a year ago, the Treasury Department decided to start divesting itself of MSBs.

Upon the Treasury buying the securities, housing market analysts claim that bonds had little value. However, it was later determined that the bond portfolio actually consisted of 30-year fixed rate mortgages guaranteed by the Fannie and Freddie.

About a year ago, the Treasury Department started divesting itself of the mortgage –backed securities in its portfolio. The Treasury received the $225 billion principal back and a return on investment of $25 billion.

Other Initiatives Not So Successful

The profit represents a significant accomplishment for the Treasury. Compared to other programs put in place to combat the worse housing crisis since the Great Depression, the MBS initiative produced good results. The MBS buying program is one of the few schemes that have helped lessen the effects of a weak economy and poor housing market.

For example, the results for another aspect of the government’s response to the financial troubles of 2008, the bail out of Fannie Mae and Freddie Mac, will saddle taxpayers with a huge loss. Analysts estimate the final cost to taxpayers will be about $100 billion.

The administration also pledged $50 billion to assist financially troubled American homeowners who fretted with the danger of losing their homes. In three years, just over $3.4 billion of the money has found its way to homeowners programs, including and the Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP).

HARP, a mortgage refinance program has undergone significant revisions in an effort to achieve better results in helping borrowers. With million of homeowners eligible to apply, mortgage refinancing applications should ramp up over the coming weeks.





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