WASHINGTON (TheStreet) -- The government's enormous estimates of how much more cash taxpayers will have to dole out to keep Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) alive indicate that the two firms have become a necessary evil on the long road to a housing recovery.
In an ironic twist, the cost to taxpayers will be $80 billion to $100 billion lower if Fannie and Freddie aren't required to pay dividends on the funds to the U.S. Treasury Department. The two firms have to borrow more money from the in order to pay those fees... from the Treasury. Since the government took over Fannie and Freddie in September 2008, the loss projections have only climbed. Last December, the Treasury lifted the cap on their $400 billion credit line to offer unlimited support. So far, they've drained $148 billion from the taxpayer till. >>>Read More: Fannie and Freddie: Making Bank Bailouts Look Cheap >>>Read More: Fannie-Freddie Bailout: $148B and Counting >>>Read More: Will Obama Slay the Fannie and Freddie Beast? In determining forward-looking cost estimates, Fannie and Freddie's regulator, the Federal Housing Finance Agency (FHFA), relied heavily upon housing-market projections from a Sept. 30 Moody's (MCO) analysis. It also assumed that interest rates will run along the track of the so-called "forward curve" of interest-rate swaps as of June 30. Using Moody's middle-of-the-road assumptions, home prices will be just about where they are right now by the end of 2013, following an additional decline of less than 10%. In the optimistic scenario, prices will stay essentially flat, ending up a tad higher by 2013. In the most bearish case, they'll still be down 15% by that time, on the way to a recovery a couple years down the line. But if there's anything we've learned in recent months about either item - home prices or rates - it's that even the most logical assumptions can run amok. Since April, home sales have declined sharply and prices have struggled to stay brittle - despite historically low mortgage rates. Since June, rate futures have fallen dramatically as market discussion turned from "when inflation will occur" to "whether deflation will occur." The yield curve - representing the difference between short-term and long-term rates - has flattened so much that banks found it hard to make money on new loans last quarter, even when their funding costs are essentially nil. 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