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Vow aims to bolster US housing market
By Alan Zibel |
January 1, 2010, Friday
|
Print Edition
Print Edition
THE United States government's Christmas Eve pledge of unlimited financial aid to mortgage giants Fannie Mae and Freddie Mac is aimed at ensuring the housing market doesn't take another turn for the worse and cause the economic recovery to unravel.
This insurance policy taken out by the Treasury Department will help keep mortgage rates low, and may wind up being a gift of sorts to struggling homeowners and banks. But there's a catch: the housing crisis is now likely to cost taxpayers much more.
The Obama administration's latest lifeline to Fannie and Freddie will cover unlimited losses through 2012, lifting an earlier cap of US$400 billion. It also eases curbs on the size of the companies' investment portfolios. That's a reversal of the Bush administration's September 2008 plan to shrink the size of the companies' holdings of mortgage-backed securities.
The action, which didn't need the approval of Congress, could position Fannie and Freddie to get more aggressive in dealing with the housing crisis, perhaps taking troubled mortgage investments off banks' books.
"They've cleared the decks to use Fannie and Freddie as a vessel for whatever they want," says Edward Pinto, a housing consultant who served as Fannie's chief credit officer in the late 1980s.
Treasury could also lean harder on Fannie and Freddie to help troubled homeowners avoid foreclosures, and by extension the banks and other investors who own their mortgages. Many economists and housing experts say an existing US$75 billion government program to prevent foreclosures isn't working fast enough, threatening the emerging signs of home price stability in many cities nationwide.
Boosting the firepower of Fannie and Freddie, which finance three quarters of all new mortgages, also should help keep rates on home loans low just as the Federal Reserve starts dialing back its US$1.25 trillion program aimed at doing just that.
This insurance policy taken out by the Treasury Department will help keep mortgage rates low, and may wind up being a gift of sorts to struggling homeowners and banks. But there's a catch: the housing crisis is now likely to cost taxpayers much more.
The Obama administration's latest lifeline to Fannie and Freddie will cover unlimited losses through 2012, lifting an earlier cap of US$400 billion. It also eases curbs on the size of the companies' investment portfolios. That's a reversal of the Bush administration's September 2008 plan to shrink the size of the companies' holdings of mortgage-backed securities.
The action, which didn't need the approval of Congress, could position Fannie and Freddie to get more aggressive in dealing with the housing crisis, perhaps taking troubled mortgage investments off banks' books.
"They've cleared the decks to use Fannie and Freddie as a vessel for whatever they want," says Edward Pinto, a housing consultant who served as Fannie's chief credit officer in the late 1980s.
Treasury could also lean harder on Fannie and Freddie to help troubled homeowners avoid foreclosures, and by extension the banks and other investors who own their mortgages. Many economists and housing experts say an existing US$75 billion government program to prevent foreclosures isn't working fast enough, threatening the emerging signs of home price stability in many cities nationwide.
Boosting the firepower of Fannie and Freddie, which finance three quarters of all new mortgages, also should help keep rates on home loans low just as the Federal Reserve starts dialing back its US$1.25 trillion program aimed at doing just that.
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