Fannie and Freddie: The Sky’s the Limit

James Gattuso /

fannie

While most of us were at home waiting for Santa and his reindeer to arrive, a gift arrived for mortgage giants Fannie Mae and Freddie Mac, as the Obama Administration lifted caps on how much bailout money they can receive from the U.S. Treasury. The old limits for the firms, both of which are under federal conservatorship, had been set at $200 billion each, though all concerned understood these were fictions. The new limits are… well, there are no new limits (which might be scored as a gain for transparency, at least). Moreover, requirements that the two shrink their portfolios were watered down.

It not entirely clear what spurred the Christmas Eve announcement. One bad scenario is that the move anticipates horrendously large losses by the two firms for the fourth quarter. Another is that the move was made to allow the twin firms to buy even more mortgages, further propping up the housing market. In other words, as support from TARP and by the Fed shrinks, Freddie and Fannie may – at least in part – take their place.
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