U.S. considering the take over of Freddie Mac, Fannie Mae
2008-07-11 14:36:19 (GMT) (Caymanmama.com - Business News)Wall Street (CaymanMama.com) - According to the New York Times, U.S. officials have been considering making the government take over the U.S.’s largest home loan buyers, Freddie Mac and Fannie Mae, if there is a continuous deterioration on their part. If the problems further worsen, then they will be placed on a conservatorship.
The shares of these companies are plunging and the borrowing costs have risen considerably. This leaves investors to worry about the possible losses that might be larger than they have already suffered in the past few months.
In fact, as per the Times, the Bush administration has also been considering offering a government guarantee of over $5 trillion or owning these companies. But this option is not likely as it would actually double public debt. The newspaper also reported that officials privy to the discussion are stressed that none of the administration’s action have been imminent. Also, Freddie Mac and Fannie Mae are not expected to fall in the crisis situation.
As the companies that were formed to promote market stability and boost homeownership guarantee and that own almost half of the $12 trillion of U.S. home loans outstanding, Freddie Mac has had $644 billion and Fannie Mae had $831 billion of the company bonds outstanding respectively as per the data.
William Poole, former president of the St. Louis Federal Reserve, said that there are more chances that Freddie Mac and Fannie Mae will be bailed out by US. It is because there is not enough capital with them to weather the worst housing slump since the Great Depression.
Poole also added that as per the data procured from a show of a Washington based company, the fair value of the assets of Fannie Mae fell 66% to $12.2 billion and might be in the negative in the next quarter. Further, Freddie Mac had owed $5.2 billion more in comparison to its assets in first quarter, thereby making it actually insolvent as per the fair value rules of accounting.
CaymanMama.com - Press Release Distribution Service
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