Tuesday, March 25, 2008
Federal Garbage Dumps?
"Federal regulators, in an effort to contain financial turmoil, are handing government-sponsored companies an even bigger role in propping up the mortgage market. Officials affirmed yesterday that government-sponsored mortgage investors Fannie Mae and Freddie Mac will enjoy loosened capital requirements, allowing them to pile more mortgage securities onto their balance sheets. Fannie and Freddie could purchase an additional $200 billion of mortgage securities, equivalent to about 10% of expected U.S. home-mortgage lending this year. The two also plan to raise new capital. ... Investors welcomed the shrinking gap and news of a greater role for Fannie and Freddie. Fannie's shares rose 8.8% yesterday to $30.71, while Freddie shares were up nearly 15% to $29.90. ... The [Fed] last week sought to stabilize the mortgage market by saying it would lend as much as $200 billion in Treasury securities to bond dealers in return for mortgage-backed securities", WSJ, 20 March 2008.
Fannie and Freddie are now garbage dumps for mortgage related securities. Their stock values should plummet over the long term.