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A year after government took over mortgage giants, they still are on shaky financial ground.
WASHINGTON — A year after the near-collapse of Fannie Mae and Freddie Mac, the mortgage giants remain dependent on the government for survival and there is no end in sight.
The companies, created by the government to ensure the availability of home loans, have tapped about $96 billion in government aid since they were seized a year ago this weekend. Without that money, the firms could have gone broke, leaving millions of people unable to get a mortgage.
Many questions remain about Fannie and Freddie’s future, but several things are clear: The companies are unlikely to return to their former power and influence, the bailout is sure to cost taxpayers even more money and the government will have a big role in the U.S. mortgage market for years to come.
Fannie Mae was created in 1938 in the aftermath of the Great Depression. It was privatized 30 years later to limit budget deficits during the Vietnam War. In 1970, the government formed its sibling and competitor Freddie Mac.
The companies boomed over the past decade, buying mortgages from lenders, pooling them into bonds and selling them to investors. But critics called them unnecessary, arguing that Wall Street could support the mortgage market itself.
That argument has faded in the wreckage of the failed loans that led to the housing bust. Investors have fled any mortgage investment that doesn’t have the government standing behind it.
After last year’s bailout, the government controls nearly 80 percent of each company, and their problems are growing as defaults and foreclosures continue to skyrocket.
Fannie had nearly $171 billion in troubled loans as of June and had set aside $55 billion to cover those losses, while Freddie had nearly $78 billion in troubled loans and reserves of only $25 billion.
The Obama administration doesn’t expect to announce its plans for the two companies until early next year, but powerful interest groups aren’t waiting until then. The Mortgage Bankers Association on Wednesday offered a detailed plan to replace Fannie and Freddie with several federally-regulated private companies.