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US vows to back Fannie Mae and Freddie Mac
By Corbett B. Daly |
December 26, 2009, Saturday
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THE Obama administration has pledged to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.
It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.
The Treasury Department said it made the changes to assure financial markets it stood firmly behind both companies and to buy more time for the two government-sponsored enterprises to whittle down their mortgage-related holdings.
The two agencies each had a Treasury credit line of US$200 billion. Combined, they have so far tapped about US$111 billion.
The Treasury's announcement on Thursday came just hours after the companies said their chief executives would be paid up to US$6 million on an annualized basis for this year.
Few analysts had expected Freddie Mac to tap full the US$200 billion, but Fannie Mae's poor underwriting standards left it with losses many thought could pass that figure.
The administration waited until financial markets had closed on Christmas Eve to make the announcement, thwarting chances for critics to have their voices heard.
"This news won't ruin anyone's Christmas. That is, except for those who are worried about the size of the nation's debt," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Under a law put in place before the government seized the two mortgage agencies in September 2008, Treasury Secretary Timothy Geithner had until the end of this year to raise the limit without asking Congress for approval.
Treasury said Fannie Mae and Freddie Mac would still need to cut their portfolios eventually. Under the new rules, their holdings could be no larger than US$810 billion at the end of next year. The limit would drop by 10 percent a year thereafter, lessening the support they could provide to the mortgage market.
Fannie Mae and Freddie Mac are congressionally chartered companies that buy up mortgages from banks and other originators to keep mortgage markets liquid. Some of the debt is repackaged as securities and sold off to investors.
It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.
The Treasury Department said it made the changes to assure financial markets it stood firmly behind both companies and to buy more time for the two government-sponsored enterprises to whittle down their mortgage-related holdings.
The two agencies each had a Treasury credit line of US$200 billion. Combined, they have so far tapped about US$111 billion.
The Treasury's announcement on Thursday came just hours after the companies said their chief executives would be paid up to US$6 million on an annualized basis for this year.
Few analysts had expected Freddie Mac to tap full the US$200 billion, but Fannie Mae's poor underwriting standards left it with losses many thought could pass that figure.
The administration waited until financial markets had closed on Christmas Eve to make the announcement, thwarting chances for critics to have their voices heard.
"This news won't ruin anyone's Christmas. That is, except for those who are worried about the size of the nation's debt," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Under a law put in place before the government seized the two mortgage agencies in September 2008, Treasury Secretary Timothy Geithner had until the end of this year to raise the limit without asking Congress for approval.
Treasury said Fannie Mae and Freddie Mac would still need to cut their portfolios eventually. Under the new rules, their holdings could be no larger than US$810 billion at the end of next year. The limit would drop by 10 percent a year thereafter, lessening the support they could provide to the mortgage market.
Fannie Mae and Freddie Mac are congressionally chartered companies that buy up mortgages from banks and other originators to keep mortgage markets liquid. Some of the debt is repackaged as securities and sold off to investors.
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