Fannie's Suicide Squeeze
They own or guarantee at least 40% of the $11.5 trillion in U.S. residential-mortgage debt outstanding.
Today, the OFHEO, regulators for Fannie Mae and Freddie Mac cut the companies' surplus capital requirement
in an effort to expand their combined $1.5 trillion in mortgage investments. The requirement was lowered to 20 from 30%.
The 30% surplus capital constraint most recently tied up as much as $53 billion at the two companies combined.
The initiative may immediately pump $200 billion into the mortgage-backed securities market.
This should allow Fannie Mae and Freddie Mac to buy or guarantee about $2 trillion more in mortgages this year.
The government-chartered companies, the largest sources of money for home loans,
also agreed to raise a "significant" amount of new capital.
The companies didn't say today how or when they would raise the additional capital.
The Nattering One muses... what comes to mind? Stupid is As Stupid Does and Spare the rod, spoil the child...
Fannie Mae in December raised $7 billion in a preferred stock sale and cut its dividend by 30%...
while Freddie Mac in November sold $6 billion in preferred stock and halved its dividend.
No one wants to touch agency MBS right now, much less hold it.
As rising foreclosures sent credit costs soaring...
Fannie Mae, the largest source of money for home loans, posted a record $3.55 billion Q4 loss
Freddie Mac reported a record $2.45 billion net loss for the period.
Its bad enough that like the underlying asset, real estate, AAA rated MBS is going to be found worth quite less than advertised.
Its bad enough that the GSE loan limits were increased to bailout the jumbo markets and the lenders.
On Feb 7th, OFHEO Director James Lockhart told the Senate Banking Committee that Fannie Mae and Freddie Mac
need to sustain reserve capital against rising foreclosures and cautioned against encouraging the companies to expand their mortgage assets.
Yet today, their reserve requirements are lowered so they can make MORE BAD LOANS. Brilliant, simply brilliant.
Keep reading about the Wall Street brokers in Play it Again Sam, where we tie some more pieces together.
Hattip to Bloomberg.
Today, the OFHEO, regulators for Fannie Mae and Freddie Mac cut the companies' surplus capital requirement
in an effort to expand their combined $1.5 trillion in mortgage investments. The requirement was lowered to 20 from 30%.
The 30% surplus capital constraint most recently tied up as much as $53 billion at the two companies combined.
The initiative may immediately pump $200 billion into the mortgage-backed securities market.
This should allow Fannie Mae and Freddie Mac to buy or guarantee about $2 trillion more in mortgages this year.
The government-chartered companies, the largest sources of money for home loans,
also agreed to raise a "significant" amount of new capital.
The companies didn't say today how or when they would raise the additional capital.
The Nattering One muses... what comes to mind? Stupid is As Stupid Does and Spare the rod, spoil the child...
Fannie Mae in December raised $7 billion in a preferred stock sale and cut its dividend by 30%...
while Freddie Mac in November sold $6 billion in preferred stock and halved its dividend.
No one wants to touch agency MBS right now, much less hold it.
As rising foreclosures sent credit costs soaring...
Fannie Mae, the largest source of money for home loans, posted a record $3.55 billion Q4 loss
Freddie Mac reported a record $2.45 billion net loss for the period.
Its bad enough that like the underlying asset, real estate, AAA rated MBS is going to be found worth quite less than advertised.
Its bad enough that the GSE loan limits were increased to bailout the jumbo markets and the lenders.
On Feb 7th, OFHEO Director James Lockhart told the Senate Banking Committee that Fannie Mae and Freddie Mac
need to sustain reserve capital against rising foreclosures and cautioned against encouraging the companies to expand their mortgage assets.
Yet today, their reserve requirements are lowered so they can make MORE BAD LOANS. Brilliant, simply brilliant.
Keep reading about the Wall Street brokers in Play it Again Sam, where we tie some more pieces together.
Hattip to Bloomberg.
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