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With Bank Money Returning, Bailout Burden Shifts Toward Housing

 The year ended with three of the biggest bailout recipients – Bank of America, Wells Fargo and Citigroup – together returning more than $90 billion to the Treasury Department. But it also ended with a Christmas Eve announcement from the Treasury that it could spend a virtually unlimited amount of money bailing out Fannie Mae and Freddie Mac. So while the Treasury is winding down its programs to support the nation’s banks, it will continue to spend big to prop up the housing market.

As of the end of December, the bailout total outstanding fell to $337.5 billion, a decrease of $84 billion since our last monthly update. We continue to track the totals on our frequently updated bailout database*, which tracks both the TARP and the bailout of Fannie Mae and Freddie Mac.

Meanwhile, the losses booked from the bailouts did not grow in December, staying around $9 billion. Treasury did, however, release its updated estimate for ultimate losses from the TARP: $61.1 billion. We’ll continue to track the losses as they’re realized.

And revenue continued to grow, reaching $20.6 billion. More about that below.

With the recent repayments by the banks, Fannie and Freddie together account for about one-third of the amount still outstanding, about $111 billion (the rest is due to the TARP). That proportion will only go up as the Treasury continues to pour in more money, and as other banks continue to refund their bailout money. Treasury made its last investment through its main bank investment program on Dec. 30.

When the government took over Fannie and Freddie in September 2008, Treasury Secretary Hank Paulson capped aid at $200 billion ($100 billion for each). But soon after he took over, Paulson’s successor, Tim Geithner, raised the cap to $400 billion total. December’s action to remove that cap doesn’t necessarily mean that the Treasury envisions spending more than $400 billion, but as stated in its announcement, the move "should leave no uncertainty about the Treasury's commitment to support these firms."

So how much will supporting Fannie and Freddie ultimately cost taxpayers? At this point, it’s anybody’s guess. The Treasury’s December analysis of the TARP’s likely long-term cost didn’t include a forecast for Fannie and Freddie. The administration has said for months that it plans to divulge its long-term plan for the companies this February, so maybe we’ll find out more then.

This year will also see the Treasury finally begin to spend big on its foreclosure prevention program. We’ve been closely following the program and have noted its devastating delays for homeowners and its lack of both transparency and effective oversight. It’s been nearly a year since President Barack Obama announced the program, but only a very small portion of the $50 billion in TARP funds set aside for it – $2.3 million as of the end of October – was actually spent in 2009 because of its slow progress. That figures to change in 2010 if the major mortgage servicers can finally move a significant percentage of homeowners into permanent modifications (a big if). Fannie and Freddie are also participating in that program and are responsible for paying out incentives to mortgage servicers and borrowers for loans they guarantee or own. Their costs from the program could rise to $25 billion.

Now for the revenue side of the ledger.

Eye on the Bailout: See our complete coverage of the bailout The TARP has two main sources of revenue: quarterly dividend or interest payments and stock warrant redemptions. The Treasury is obligated to use TARP revenue to pay down the national debt.

So far, bailout recipients have paid $16.6 billion in dividends and interest, an amount that includes the $4.3 billion in dividends paid by Fannie and Freddie and special one-time fees charged to two TARP recipients.

The Treasury has also collected $4 billion in exchange for its warrants. The stock warrants, which give the U.S. the right to buy equity in the companies at a set price, came as a condition of the investments. When companies refund the Treasury’s money, the warrants are either sold back to the company or auctioned off.

Altogether, the Treasury has collected $20.6 billion in revenue from the TARP and the Fannie and Freddie bailouts.

So that’s our monthly sobering assessment of the likelihood of recouping the bailout funds: $337.5 billion out the door, at least $9 billion that almost surely won’t be coming back, and $20.6 billion in revenue to serve as a buffer against losses.

*A technical note: While we do our best to keep our bailout database comprehensive and accurate, the government has not released the data for each participant – specifically in the case of the toxic asset program. In those cases, our database shows a lower amount than has actually been spent, because Treasury has not yet disclosed how much was paid to each recipient. However, Treasury has released the aggregate amount invested and lent via the program so far, and we show that amount. We’ve used it to compute the totals in this post.

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