By Michael Iachetta

In 2003, Rep. Barney Frank (D-MA) famously denied that "the Federal Government is obligated to bail out people who lose money in connection" with Fannie Mae and Freddie Mac: "There is no guarantee, there is no explicit guarantee, there is no implicit guarantee, there is no wink-and-nod guarantee. Invest, and you are on your own."

We now know that Rep. Frank was either ignorant or lying, but are most Americans aware that the U.S. government is now responsible for all of Fannie and Freddie's financial obligations, and that these obligations amount to nearly $7 trillion worth of debt and guarantees?

The mainstream media typically represents the bailout of Fannie and Freddie as a relative bargain, costing the Federal government "$130 billion and counting" as of 2011 (NPR) and a decade from now perhaps only "$28 billion" (The Economist). Yet these figures only represent the amount of money the Treasury has invested to keep Fannie and Freddie solvent, minus the profits the GSEs have paid back to the Treasury. They do not include the financial obligations of the GSEs, for which the U.S. government is now entirely responsible.

As the Associated Press reported in 2008, "with the government takeover of Fannie Mae and Freddie Mac, U.S. taxpayers now essentially own the bulk of the nation's mortgage market." In other words, when Fannie and Freddie went into conservatorship in September 2008, the two GSEs became (in the words of the Congressional Budget Office) "governmental," and this "effectively made the government's backing of their debt securities and [mortgage-backed security] guarantees explicit" (see p. 3 and p. vii of the 2010 CBO report).

So what is the potential damage?

As of September 2008, Fannie and Freddie guaranteed roughly $3.5 trillion worth of mortgage-backed securities. The present figure must be significantly higher, because the GSEs, along with Ginnie Mae and the Federal Housing Administration, have purchased or guaranteed nearly every mortgage issued in the United States since late 2008 when the GSEs went into conservatorship. These agencies backed "nearly 97% of U.S. mortgages in 2009," "96.5% of all newly originated mortgages" in the first quarter of 2010, and "nine out of every ten home loans" in 2012.

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