An NYT article indicated that the two mortgage giants may need even more government money to cover their losses beyond the $400 billion ($200 billion each) already committed. If this is true, it raises a question as to whether this money would be covering losses incurred on mortgages subsequent to their collapse in September of 2008.
It would be difficult to imagine that these mortgage giants could have incurred losses in excess of their assets of more than $200 billion on their portfolios and guarantees at the time of their takeover (@ $3 trillion for Fannie and $2.5 trillion for Freddie). While both companies did get into Alt-A and subprime mortgages at the peak of the bubble, the bulk of the mortgages they held or guaranteed were prime mortgages. These mortgages required either a 20 percent down payment or mortgage insurance.
Just for some quick arithmetic, if 20 percent of Fannie's mortgages (owned or insured) went bad that would imply $600 billion in bad mortgages. If Fannie's losses on these mortgages averaged 25 percent of their value (very high considering a down payment requirement and/or mortgage insurance), this would imply loses of $150 billion. Freddie's loses would be proportionately less assuming the same ratios.
If Fannie and Freddie incurred large losses on mortgages purchased subsequent to their takeover, it would imply that they overpaid banks for these mortgages. Whether or not this was a deliberate policy, it means that Fannie and Freddie were subsidizing the banks in much the same way as TARP was supposed to do when the plan was initially proposed to Congress. Unlike any subsidy provided through TARP, a subsidy provided through Fannie and Freddie would not be known publicly and would impose no conditions on banks. This would be an issue worth investigating.