Government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were placed into conservatorship in September of 2008 and since that time the U.S. Treasury Department has extended to each a financial lifeline to weather severe losses. Available to both GSEs, the Treasury has offered a credit line of $200 billion and to date Fannie Mae has tapped into $51 billion of its available line and Freddie Mac $60 billion. Signaling that the Treasury Department is moving onto what they hope will be a more effective strategy, just as their program to purchase mortgage-backed securities is ending, it appears this burden is going to be shifted onto GSEs Fannie Mae and Freddie Mac. In a move to by-pass the need for congressional approval, the Treasury announced before the end of the year that it would increase its commitment to both GSEs and that the Administration had elected to put off the planned restructuring of Fannie and Freddie and in turn would be beefing up its support for the GSEs, without limitation, over the next three years.
Fannie Mae and Freddie Mac have been the Administration’s key players in the Making Home Affordable Program’s loan modification efforts. In response to the underwhelming results achieved under the program to date, it is forecast that the next move in the modification effort will be to reduce the principal mortgage balances of distressed homeowners and that Fannie and Freddie will become the likely recipients to park the assets that Treasury deems it necessary for them to hold in the process. With an increased cap of $900 billion permitted in their portfolio size, Fannie currently has a $752 billion portfolio and Freddie’s sits at $762 billion. Both GSEs now appear to have sufficient capacity in their respective portfolios to be able to purchase their own mortgage-backed securities. The Treasury department halted its own purchases of GSE mortgage-backed securities at the end of the year after acquiring nearly $220 billion since the GSEs went into conservatorship. This additional capacity granted to the GSEs portfolios should permit them the short term capability to acquire the delinquent mortgages from their own guaranteed mortgage pools so that they may then be modified according to plan. Currently it is estimated that Fannie Mae has $152 billion in serious delinquencies and that Freddie Mac is harboring $69 billion.
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