According to the New York Times, the four biggest mortgage backers in the U.S. are going to remain on government support for quite some time. Why? Because someone has to guarantee the securitized mortgages that are still out there. As homeowners default, someone has to absorb the value of the defaulted mortgage.
Ultimately, that responsibility falls upon taxpayers -- money given to these mortgage giants comes at a cost. Much like a pay day loan, these companies are finding themselves in a position where they must borrow more money from the government in order to keep up with their existing debts to the government.
To make matters worse, AIG, a company oft-described as, "too big to fail," is unable to sell assets that could bring it revenue to pay off its existing commitments. In some situations, this is because subsidiary businesses are not wholly owned by AIG and require that their investors be bought out before a business can be sold.
Although many of the major banks are repaying or have repaid their TARP loans, it seems that the mortgage backers are nowhere near being out of the woods yet. Perhaps this will lead to increased pressure to comply with the government's loan modification programs.
