Posted by: Snappo Date: Thursday, October 30, 2008 8:40:19 AM
In reply to: Snappo who wrote msg# 11257 Post # of 11282
See bold down the page... don't really understand what the consequences would be for shareholders???
Fannie, Freddie Fulfilling Mortgage Mission - Regulator
By Steve Kerch
Fannie Mae (FNM), Freddie Mac (FRE) and the Federal Home Loan Bank Boards are doing "business as usual," their regulator said Wednesday, but it will be some time before normalcy returns to the U.S. mortgage markets because of all the other financial events that have overwhelmed it.
"They are out playing their role, fulfilling their missions," said James Lockhart, director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac in their government conservatorship. "They are buying assets and guaranteeing mortgage-backed securities. And they have plenty of room on their balance sheets now to buy assets that will support those missions."
"It really is business as usual. We are encouraging them now to be more creative," Lockhart told a ballroom crowd at the Urban Land institute fall meeting here. "In this marketplace we really need Fannie and Freddie to provide liquidity and support."
Although the government takeover of Fannie and Freddie, which included for each a $100 billion credit facility with the U.S. Treasury to back its debt, was expected to calm mortgage markets, volatility has been the rule.
"For the first couple of weeks or so what we thought would happen did happen - - mortgage rates came down. Then other, bigger financial issues began to hit and overwhelmed them," Lockhart said. "So many different actions have been taken all around the world...there is just a lot of confusion out there, confusion and fear. It will take time to work its way through."
While both Fannie Mae and Freddie Mac are expected to grow their balance sheets in the coming year in an effort to keep mortgage money flowing in the U.S., the plan is to allow the mortgage giants to shrink again starting in 2010.
"They primarily should be mortgage guarantee companies with portfolios specialized in areas like multifamily," where they are likely to make $50 billion on loan purchases this year, Lockhart said. "But they don't need trillion-dollar balance sheets to do that. This would be done through a natural run-off of their portfolios. They won't have to sell assets."
"If you put something into conservatorship, the idea is to bring them out on the other end. I think next year you'll see that that are profitable again and hopefully they will be able to attract investors again," he said.
The future structure of the two former government-sponsored enterprises is uncertain as Congress will have to decide what it wants after authorizing the federal takeover of the two this summer. Among the options Lockhart says are under consideration are nationalizing the two businesses, completely privatizing them, fragmenting them into a number of smaller companies or reconfiguring them as "stronger, better" GSEs.
"They do have very important missions: providing stability, liquidity and affordability in the mortgage market, both in single-family and multifamily," he said. But the government takeover was necessary because "they were meant to be a countercyclical force and it was clear they weren't going to be" in the current financial crisis, he said. "They were so dependent on investors, particularly foreign investors, that we knew if those investors withdrew we'd have an even more severe credit crunch."
-Steve Kerch; 415-439-6400; AskNewswires@dowjones.com
