Valuing Government Guarantees: Fannie and Freddie Revisited

Estimates for the size of the implicit Federal guarantees for debt issued by Fannie Mae and Freddie Mac have ranged from $200 million (Stiglitz et al, 2002) to $122 to $182 billion (Passmore, 2005). This paper extends and updates the estimates in Lucas and McDonald (2006), by simultaneously estimating the current stock price and the possible future loss, and permitting jumps in asset value. We annuitized expected losses of 15-20 basis points, with a present value in the vicinity of $20 billion.