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And that’s the tip of the iceberg. Watchdog agencies are furious over the huge amount of taxpayer’s money being wasted on legal fees in suits related to Fannie Mae and Freddie Mac. According to one report, the total legal bill has already crossed $110 million out of which close to half is borne by taxpayers.
However, the report was only on one legal case against Fanny Mae, and the actual costs to the public can be way higher. Significantly, in a 2011 congressional hearing it was reported that the legal bills of the housing giants had already crossed $160 million.
Both the companies were virtually overtaken and became indirectly funded by the government from September 2008 after being placed in conservatorship and after being provided huge cash infusions to cover the losses caused by the subprime mortgage crisis.
The biggest source for the bailouts was the Troubled Assets Relief Program (TARP), though the major part of the bailout amounting close to $480 billion has been returned to the treasury.
The two firms are still in leading positions in the market and are currently financing almost two thirds of mortgages being written in the nation.
The Federal Housing Finance Agency agreed to the report of the inspector general and expressed the need to limit future legal fees. The watchdog’s report mentioned that more legal bills are expected since the U.S. Securities and Exchange Commission has filed a new lawsuit against six former officers of Fannie Mae and Freddie Mac.
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After taking over the two companies, the Federal Housing Finance Agency also became liable to pay for the existing lawsuits and legal bills against the companies. While the employees against whom the suits have been filed no more work at the companies, the legal fees have to be borne by taxpayers as part of benefits packages agreed during the takeover.
Lawmakers have started expressing strong opinions on the appropriateness of the legal pay outs as the bailouts with taxpayer’s money hit $183 billion in December.
The report of the watchdog agency expressed, “Given the significant amounts of taxpayer money involved and the issue’s high visibility, FHFA must continue to scrutinize intensively the enterprises’ advances in order to limit costs.”
