The Obama administration on Friday issued a white paper with proposals to gradually phase out the two housing giants. Concern has been raised by some analysts in China in recent days that the reform plans could create losses on China's significant holdings of bonds and asset-backed securities issued by the two companies. But the foreign exchange regulator has strongly denied it stands to face any losses. http://www.foxbusiness.com/markets/2011/02/12/china-forex-regulator-ensures-fannie-freddie-obligations/ ----------------------------------------------------------------------
Wall Street Journel/China Realtime Report:
China has never disclosed the size of its holdings of Fannie and Freddie securities, but according to the U.S Treasury’s report on foreign holdings of U.S. securities, China held $454 billion of long-term U.S. agency debt as of June 30, 2009. That includes $358 billion of “asset backed securities…backed primarily by home mortgages,” and $96 billion of other long-term agency debt.
At issue are three kinds of Fannie and Freddie securities. The two companies' stock prices have plunged to nearly zero, but SAFE said in its statement Friday that China has never invested in the stock of the two companies, so it hasn't been affected by the decline.
The real concern is over the debt issued by the companies, as well as asset- backed securities that the companies have packaged out of mortgages and sold to investors. However, the Obama administration has committed unlimited amounts of aid to ensure that the firms meet their obligation to holders of those bonds and securities. The commitment has cost U.S. taxpayers $134 billion so far.
Has the Treasury matches whatever a private investor puts up, then credits 6X as much capital. So if the Chinese are buying $2 billion, the US puts up $2 billion, and then the PPIP allows the purchase of $24 billion of distressed assets in the open market.""
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