Fannie May, Freddie Mac done?

[Bindare_Dundat]

Shares in US mortgage finance giants Freddie Mac and Fannie Mae have plunged again on fears that the government will be forced to bail out the pair.

The slide reignited concerns about the health of the financial sector and sent the US stock market sharply lower.
A report by US financial weekly Barron's suggested that the chances of a government rescue were increasing.

However, the Treasury said that it had no plans bail out the two firms, which underpin the US mortgage market.
The Treasury gained the authority to bail out the Freddie Mac and Fannie Mae, including buying shares in the two companies if needed, in a rescue plan approved at the end of July. Citing an unidentified source, Barron's said US officials anticipated that the two firms would not be able to raise the money they needed to improve their financial footing.
The paper said a government bail-out would likely wipe out existing holders of the firms' shares. Both firms were trading near 18-year lows.

Shares in Freddie and Fannie fell sharply last month on fears that they would run out of money to fund their business, forcing the US government to take radical steps to ease the panic.

The two firms are the backbone of the US mortgage market as almost all US lenders rely on them to buy their mortgages in order to access the funds to lend to consumers. As mortgage guarantors, they must pay out when homeowners default on their loans. With the housing market across the US crumbling, their finances have come under severe stress.



Asked for authority to bail them out but has no plans to bail them out. huh?

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Speaking at a conference in Singapore, Mr Rogoff, now an economics professor at Harvard, forecast that Fannie Mae and Freddie Mac would "probably" not exist in their present form in a few years.

"We have to see more consolidation in the financial sector before this is over."

On Monday, shares of Fannie Mae fell more than 22%, or $1.76, to close at $6.15. Shares of Freddie Mac fell almost 25%, or $1.46, to $4.39.

Shares in Freddie and Fannie first fell sharply last month on fears that they would run out of money to fund their business, forcing the US government to take radical steps to ease the panic.

The two firms are the backbone of the US mortgage market as almost all US lenders rely on them to buy their mortgages in order to access the funds to lend to consumers.

As mortgage guarantors, they must pay out when homeowners default on their loans.

With the housing market across the US crumbling, their finances have come under severe stress.
Problems in the US housing sector prompted the Federal Reserve to slash interest rates to 2% earlier this year.

But Mr Rogoff said the Fed was wrong to cut interest rates as "dramatically" as it did.
"Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States," he added.

[stormshadow]

"We have to see more consolidation in the financial sector before this is over."

Like this wasn't planned...

Every bust, we have a transfer of wealth.

[Bindare_Dundat]

Bank of China flees Fannie-Freddie

Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae (NYSE:FNM) and Freddie Mac by a quarter since the end of June.

The sale by China's fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie's bonds and guaranteed securities.

Foreign investors have been a mainstay of the market for such debt, but uncertainty over the mortgage financiers' capital positions and the timing and structure ofa potential government rescue has made some investors reassess their exposures. Asian investors in particular have become net sellers of agency debt, said analysts.



Federal Reserve custody data shows that for the year to July, foreign official and private investors bought an average of $20bn of agency debt a month, including debt issued by other government agencies such as Ginnie Mae and the Federal Home Loan Banks. Purchases of US Treasuries averaged $9.25bn.

From July 16 to August 20, foreign investors sold $14.7bn of agency debt, trimming their overall holdings to $972bn. They purchased $71.1bn of Treasuries in the same period.

The US Treasury was granted powers last month to extend its credit lines to Fannie and Freddie and invest in their debt and equity. The rescue plan came after a collapse in the companies' shares heightened concerns about their ability to raise equity capital to cushion losses and whether they could maintain their access to the debt markets.

By making a historically implicit government guarantee for the mortgage financiers' debt increasingly explicit, the Treasury sought to reassure foreign and domestic investors by providing a safety net. Fannie and Freddie have a combined $1,500bn of debt outstanding.

This weekend, the Group of Twenty developed and advanced developing countries will be holding a preparatory meeting in Brazil. Although the crisis at Fannie Mae and Freddie Mac is not on the agenda, there is speculation that Treasury officials could informally encourage big holders of agency debt and mortgage-backed securities not to scale back their investments.

After a sharp drop in the market value of their stock last week, Fannie and Freddie have made a strong recovery after successful short-term debt sales. Fannie was 13.5 per cent higher on Thursday and Freddie was up 12 per cent.

Bank of China's disclosure on its holdings of Fannie and Freddie securities came as the bank reported a 15 per cent increase in second-quarter profit.