Government-backed Mortgage company Freddie Mac announced at congressional subprime hearings yesterday that they would be purchasing up to $20 billion of subprime loans to help stem the wave of defaults plaguing subprime mortgage borrowers. Fannie Mae also said it could purchase "tens of billions of dollars in loans." Lender Washington Mutual announced separately that despite subprime losses, it would also set aside $2b to help borrowers. These efforts may be a drop in the bucket—there are an estimated $1- 1.4 trillion worth of subprime loans outstanding to reset in coming years. And Freddie and Fannie's motives may be guided less by altruism and more by currying favor after recent accounting scandals had regulators calling for Fannie and Freddie's mortgage divestiture. It's all part of efforts to help stop rising national foreclosure rates from subprime and adjustable-rate loan defaults. FDIC chairman Sheila Bair testified at the hearings that since most loans are securitized and sold to investors, lenders would not be able to adjust borrowers loan terms. Initially government and civic groups backed legislation, but instead are now calling on all parties in the subprime loan crisis to help each other out.
Sources: Bloomberg, Wall St. Journal, LA Times, MarketWatch, Hartford Courant
Commentary: Fannie Mae and Freddie Mac: OFHEO Releases Harsh Judgments • Bernanke: Link Fannie's and Freddie's Portfolios to Affordable Housing • Housing Double Dips Offer Short Opportunities • Washington Mutual : Riskiest Portfolio in U.S. - WSJ
Stocks/ETFs to watch: Freddie Mac (FRE) • Fannie Mae (FNM) • Washington Mutual (WM)
Related: Freddie Mac Corporate Press Release • Freddie Mac Q4 2006 Earnings Call Transcript
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