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Friday, May 30, 2014 2:08:12 PM
Fannie Mae and Freddie Mac cannot remain safely in conservatorship indefinitely, and they cannot get out from under Uncle Sam’s protection without “cataclysmic” consequences to the government-sponsored enterprises, MBS investors and the market, according to a new Urban Institute study.
While the Federal Housing Finance Agency and the White House can make minor changes administratively, the UI paper notes it would take an act of Congress to authorize substantial revisions to the GSEs’ bailout agreement.
In order for Fannie and Freddie to exit conservatorship with the full faith and credit of the government, they would have to pay the Treasury a fee equal to the value of the government’s backing under the terms of their preferred stock purchase agreements.
The UI calculates that a fee equal to the GSE’s $265 billion line of credit – Fannie ($125 billion), Freddie ($140 billion) – would be “astronomically high” and “well above what the enterprises could cover in revenues in the near term.” To cover the shortfall each quarter, Fannie and Freddie would have to borrow against their lines of credit. For further analysis, see the new edition of Inside MBS & ABS.
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