$400 Billion Aid for Fannie Mae, Freddie Mac
The U.S. Federal Housing Finance Agency (FHFA), may ask the Treasury Department before the end of the year for an increase in the $400 billion federal lifeline provided to Fannie Mae and Freddie Mac, according to a Bloomberg report.
Fannie Mae and Freddie Mac own or guarantee half of all U.S. mortgages.
“Treasury officials aren’t likely to take the chance of allowing the companies to fall into receivership, which is a bankruptcy-like process that would increase the companies’ debt costs and disrupt the mortgage markets, said Paul Miller, a former examiner for the Federal Reserve who now analyzes the banking and mortgage industry for FBR Capital Markets in Arlington, Virginia.
“The Treasury has shown that their pain threshold is almost” non-existent, and the housing “market is still very fragile,” Miller said in an interview.”
The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury in September 2008. It was one financial event among many in the ongoing subprime mortgage crisis.
On September 7, 2008, James B. Lockhart III, director of the FHFA announced his decision to place two government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac into conservatorship run by the FHFA.
Then Treasury Secretary Henry Paulson stated his support and said, “I attribute the need for today’s action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction.”
The Treasury committed to invest as much as $200 billion in preferred stock and extend credit through 2009 to keep Fannie and Freddie solvent and operating. The U.S. government feared the collapse of the two GSEs would threatened to disrupt the housing financial market.
Fannie and Freddie have outstanding more than $5 trillion in mortgage backed securities (MBS) and debt; the debt portion alone is $1.6 trillion. The conservatorship action has been described as “one of the most sweeping government interventions in private financial markets in decades,” and one that “could turn into the biggest and costliest government bailout ever of private companies”.
Fannie, Freddie Overseer Said to Consider Seeking More U.S. Aid
