No better time than Xmas Eve to announce the expansion of the administration’s housing slush fund. Previously, Fan (FNM) and Fred (FRE) each had a $200 billion credit line from Treasury. Though they’ve drawn only $111 billion so far, the administration thought it prudent to offer unlimited support … just in case. By the way, read to the bottom for a interesting bailout factoid you may not have known… (Christie/Shenn, Bloomberg)
The U.S. Treasury Department will remove the caps on aid to Fannie Mae and Freddie Mac for the next three years, to allay investor concerns that the companies will exhaust the available government assistance.The two companies…have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.
Treasury says the two aren’t likely to need the full $400 billion they’d been offered, but its authority to expand the guarantee unilaterally expires Dec 31. Tim Geithner doesn’t want Congress getting in the way if he needs to offer more support later…
Besides expanding taxpayers’ commitment to Fan and Fred, the diktat demanding they shrink their balance sheets has been watered down.
The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their portfolios of mortgage assets. Previously, the companies were instructed to reduce their portfolios at a rate of 10 percent a year. Now, they will be required to keep the value of their portfolios below a maximum limit, currently $900 billion, that will go down by 10 percent a year.
This means they will not need to take immediate action to trim their holdings and could allow them to rise. Fannie Mae’s portfolio ended October at $771.5 billion and Freddie Mac’s holdings at the end of November were $761.8 billion, according to the latest figures released by the companies.
Obama needs a slush fund to prop up housing, especially after Ben Bernanke stops printing money to buy mortgage-backed securities at the end of March. Fan and Fred will continue to serve nicely.
One other thing you probably didn’t know. Treasury has its own MBS purchase program running parallel to the Fed’s. It has accumulated quite a bit of paper…
The Treasury said today that it is ending its mortgage- backed security purchase program as of Dec. 31, after about $220 billion in purchases.
That’s in addition to the $1.25 trillion and $175 billion the Fed is spending on MBS and Fannie/Freddie debt respectively.
We may be getting paid back part of one bailout — TARP — but the only reason banks have the capital to pay that back is because of balance sheet protection they get from other bailouts, not to mention general taxpayer support for asset prices.
