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Strategies & Market Trends : The Residential Real Estate Crash Index

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From: ChanceIs	6/13/2006 1:41:47 PM
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UPDATE: Treasury Mulls Limiting Fannie, Freddie Debt >>>We may or may not have a broad debt implosion, but it sounds like the government is finally getting its act together and putting some constraints on the GSEs. The growth rate we have been experiencing will be reined in - as if it hasn't begun contracting of its own bloated mass.<<< DOW JONES NEWSWIRES By Robert Schroeder WASHINGTON (Dow Jones) -- The Treasury Department is reviewing the procedure for approving debt issues of mortgage giants Fannie Mae and Freddie Mac in response to accounting scandals at both companies. Fannie (FNM) and Freddie (FRE) , both government-sponsored enterprises, issue debt to fund their mortgage investment businesses. Treasury is in charge of approving those debt issuances. But the Bush administration and members of Congress have grown increasingly concerned about the risks posed to the U.S. economy by both companies, which hold massive amounts of mortgage-backed securities. Tuesday, Treasury Undersecretary Randal Quarles said in a speech he's asking Treasury staff to review how it approves Fannie and Freddie's debt issues. "The time is right for Treasury to review its debt approval process to ensure that we continue to act as appropriate custodians of the power that Congress gave us when the charters of Fannie Mae and Freddie Mac were created," Quarles said in remarks to a housing and finance group. It's legally unclear, however, if Treasury has the ability to limit debt issues by either company. Quarles said it's been easier for Fannie and Freddie to boost their earnings in the mortgage investment business because they can issue debt at lower rates than other companies. But Quarles said the administration still favors legislation capping the holdings of mortgage backed securities held by the companies. Last week, Senate Banking Committee Chairman Richard Shelby, R-Ala., said he's aiming for the Senate to debate a bill that would tighten rules on the companies by the end of the summer. The House passed its own bill in October. "A legislative solution is the best approach to addressing the systemic risks created by Fannie Mae's and Freddie Mac's outsized portfolio," Quarles said.

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