Fannie,Freddie regulator said U.S. backs debt -WSJ
10/21 12:29 PM
NEW YORK, Oct 21 (Reuters) - The regulator of Fannie Mae (FNM:$0.8717,$-0.0783,-8.24%) and Freddie Mac (FRE:$0.9222,$-0.1478,-13.81%) said the federal government is trying to help the two housing finance providers sell debt on better terms, The Wall Street Journal reported on Tuesday.
James Lockhart, the director of regulator the Federal Housing Finance Agency, at the Mortgage Bankers Association's 95th Annual Convention & Expo in San Francisco on Monday said the government has effectively guaranteed Fannie Mae's (FNM:$0.8717,$-0.0783,-8.24%) and Freddie Mac's (FRE:$0.9222,$-0.1478,-13.81%) debt, the newspaper reported.
"The U.S. government will be behind them short, medium and long term," Lockhart later told the Journal in an interview, the newspaper reported.
The federal government seized control of Fannie Mae (FNM:$0.8717,$-0.0783,-8.24%) and Freddie Mac (FRE:$0.9222,$-0.1478,-13.81%) on Sept. 7 because of fears that a failure of either of them could have severe consequences for financial markets. The two congressionally chartered companies own or guarantee nearly half of of the country's $12 trillion in outstanding U.S. mortgages.
Agency debt securities issued by Fannie Mae (FNM:$0.8717,$-0.0783,-8.24%) , Freddie Mac (FRE:$0.9222,$-0.1478,-13.81%) and the 12 regional Federal Home Loan Banks have cheapened dramatically recently, spurred by news that the Treasury plans to buy stakes in U.S. banks and the Federal Deposit Insurance Corp will provide guarantees on bank debt for three years.
The FDIC said it would try to unlock interbank lending by guaranteeing 100 percent of the senior unsecured debt of banks and other depository institutions. It also will guarantee all deposits held in non-interest-bearing transaction accounts until the end of 2009.
While a multitude of events have affected valuations, many say the last leg of the cheapening in agency debt securities. was due to the FDIC announcement.
Investors concluded that bank debt carrying the full faith and credit of the U.S. government would compete with agency debt, sparking a sell-off. The fact that debt from Fannie Mae (FNM:$0.8717,$-0.0783,-8.24%) and Freddie Mac (FRE:$0.9222,$-0.1478,-13.81%) was not included in this plan was perceived as another negative to the credit of agencies as well.
Lockhart said investors needn't worry about Fannie Mae's (FNM:$0.8717,$-0.0783,-8.24%) and Freddie Mac's (FRE:$0.9222,$-0.1478,-13.81%) ability to repay their debt, because the Treasury has agreed to provide as much as $100 billion of equity capital to each company, if needed, the newspaper reported. (Additional reporting by David Lawder, Editing by Leslie Adler)
