Legislators just passed an extension to the $8,000 home buyer tax credit in December. It’s estimated that as much as $11 billion will be lost in tax revenue as Congress does whatever it can to try to help the housing sector, which was the financial ground zero of the economic collapse.

Up to this point, the tax credit has cost the taxpayers around $10 billion. Some studies suggest that as few as 20 percent of the people claiming the credit were truly new home buyers. The program was expanded to allow buyers to claim the credit for as long as five years, and it also raised the income threshold set for eligibility.

Still, the home buyer tax credit is the smallest portion of the “cash for clunker homes” mess. Both Fannie Mae and Freddie Mac, the two Government Sponsored Enterprises were ones that promoted subprime home loans as well as the securitization of mortgages, part of what led to the housing mess. Essentially, these two GSEs took bad mortgages and turned them into bad securities.

As of now, Fannie and Freddie are responsible for underwriting $5.4 trillion in home loans. Back in October, the Treasury Secretary Tim Geithner promoted the extension of today’s loan limits to help make more home loans available for working families, and also to help with the recovery of the housing market.

Yet, this hasn’t been a success story by any means. Fannie Mae lost $102 billion over the past two years. Freddie Mac, while they lost less than Fannie Mae in the third quarter of 2009, is down $121 billion in the past 14 months. Freddie Mac has been provided a total of $60 billion in aid from the taxpayers over the past two years.

Still, the FHA is pushing ahead like a bull in a china shop. They’ve issued over $360 million in home loans in 2009, which is around twice the amount they issued in 2008 and as much as four times the amount they loaned in 2007. The FHA only requires a down payment of 3.5 percent, and the limit for an FHA loan is, temporarily, $729,750.

To further illustrate this, look at the FHA’s share of new home loans. In 2006, just 2.7 percent of new home loans were FHA loans. Today, 23 percent of new home loans are FHA loans. In that time, the capital reserves of the FHA dropped to around half a percent, which is well below the two percent mandated by congress.

Time will tell what all of this messing with the markets will do. Fannie Mae and Freddie Mac are again in a risky position, and it would seem that Washington politicians are bound and determined to repeat their mistakes.

Photo via Bob Jagendorf