The hole at the corner of 15th and L streets, in downtown Washington, is deep -- and getting deeper.
Earth-movers there are laying the foundations of a shiny new headquarters for Fannie Mae, the bailed-out giant of American mortgages.
But the sleek design, replete with glass sky bridges, belies a sober reality: Fannie Mae and its cousin, Freddie Mac, are once again headed for trouble.
In fact, there’s almost no way around it. On Jan. 1, 2018, the two government-sponsored enterprises will officially run out of capital under the current terms of their bailout. After that, any losses would be shouldered by taxpayers.
Granted, few people are predicting a disaster like the one in 2008, when the GSEs had to be thrown a $187.5 billion federal lifeline. But eight years later, people still don’t agree on what to do with these wards of the state. In Washington and on Wall Street, the fight over Fannie and Freddie drags on.
“Everyone agreed that this was a broken business model that made no sense,’’ said Douglas Holtz-Eakin, president of the American Action Forum, a center-right advocacy group in Washington. “Now, inertia is driving the way.’’
The stakes are high. Earlier this month, the Federal Housing Finance Agency, which oversees the GSEs, said Fannie and Freddie might need a $126 billion rescue if the economy were to stumble hard again. In recent years the Treasury has collected more than enough money from the GSEs, in the form of dividends, to cover a bill of that size.
But to the GSEs’ critics, the real issue is that policy makers have yet to come up with a long-term plan. Republicans want to kill the quasi-governmental companies. Democrats have floated the idea of merging them. Hedge fund managers like Richard Perry have gone to court to claw back dividends swept up by the Treasury.
And so one of the thorniest financial questions of the early 2000s -- what role, if any, should the federal government play in America’s $10 trillion mortgage market -- will now fall to the next president. So far, neither Hillary Clinton nor Donald Trump have seized on the issue.
The good news is that taxpayers have recouped their bailout money, and then some. By September Fannie Mae and Freddie Mac will have routed to the U.S. Treasury some $251 billion in dividends on senior preferred stock that the government acquired in the rescue. The GSEs have paid those billions to the Treasury, rather retain any of the money as operating capital.