The cost of government support for the US’s large federal mortgage businesses may have to double as a reflection of ongoing vulnerabilities in their balance sheets and persistent bad debt problems across the sub-prime sector, according to regulatory body the Federal Housing Finance Agency.
Freddie Mac and Fannie Mae, the two giant lending operations supported by the US authorities, were severely hit by the global banking crisis and intolerable levels of payment defaults in the US sub-prime sector, requiring significant bailout support from the US federal government totally almost $150bn.
However, with concerns over the strength of more of its loan book, and increasing levels of defaults still impinging on liquidity, the FHFA has today suggested that more may need to be done to rescue the lenders, which could take the total bailout package for the two to just over $360bn.
The news comes at a particularly undesirable time for the current US administration, which has come under pressure over the perceived weak economic recovery in the US. That said, economists have suggested that in extending stimulus measures further to the banks, persisting liquidity problems may ease as the economy continues its sluggish but positive growth.
The announcement comes alongside news that the FHFA is to pursue legal action against US lenders caught up in the banking crisis in respect of mis-selling loan and mortgage products, in an attempt to fight back against reckless investing in the finance sector which many analysts believe fundamentally undermined the strength of lending institutions.