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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: zebra4o1 who wrote (24577)	1/13/2005 2:24:01 PM
From: ild	Respond to of 110194

WASHINGTON (Dow Jones)--The Federal Reserve published Thursday a new staff study that found the mortgages Fannie Mae (FNM) and Freddie Mac (FRE) buy for their own portfolios have a "negligible" effect on lowering borrowing costs for consumers. The findings of the study, by Fed economists Wayne Passmore, Shane Sherlund and Andreas Lehnert, were largely unchanged from the preliminary conclusions Passmore presented last weekend at the annual meeting of the American Economics Association. The economists studied the effect of portfolio purchases and mortgage securitization by Fannie Mae, Freddie Mac and other government- sponsored enterprises on mortgage rates from 1994 through 2003. Passmore also updated his research on the value of the companies' implicit federal guarantee, which he estimates is worth between $122 billion and $182 billion - 53% of which is retained by shareholders. The purchases, the economists said, have a "negligible" effect in narrowing the difference in interest rates of 30-year mortgages and 10-year Treasury bonds. Over the long term, the researchers found, the difference was "less than one basis point." A basis point is one-hundredth of a percentage point. 01/13 11:32 =DJ Fed Releases Paper Questioning GSE Benefits, Subsidies-2 Passmore's estimates of Fannie and Freddie's federal subsidies, the percentage of their market value derived from the subsidies and shareholder retention of the subsidies, all increased from his original estimates in a preliminary paper released in late 2003. Passmore had previously estimated the value of the implicit federal backing at between $119 billion and $164 billion, accounting for between 42% and 81% of the companies' market value. He had also previously said Fannie and Freddie's shareholders kept between $50 billion and $97 billion of the gains the companies derive from their federal subsidies. The gross value of the companies' federal benefits is now valued as high as $ 182 billion, of which shareholders retain between $53 billion and $106 billion. Roughly 44% to 89% of their market value stems from their implicit federal backing. If the companies were privatized, Passmore said, "they would hold far fewer of their own mortgage-backed securities in portfolio and, as a consequence, would be much smaller organizations." He added that they would have to at least double their capital-to-assets ratio from current levels if they were private. 01/13 11:53 =DJ Fed Releases Paper Questioning GSE Benefits, Subsidies-3 The Fed economists dispelled as myth the idea that Fannie Mae and Freddie Mac helped stabilize the financial markets in the wake of the Russian currency crisis and near-collapse of the hedge fund Long-Term Capital Management in 1998. "The GSE actions during the liquidity crisis of 1998 were not extraordinary; further, had GSEs done nothing during this period, primary and secondary market spreads would have evolved in about the same way," the economists said. "What is unique about the GSEs is not that they buy assets when they expect a large return on equity, but that, unlike a purely private investor, GSEs can issue debt that other investors treat as implicitly insured by the government," they said. "Clearly during a time of crisis, such debt might be better received in the markets than purely private debt and, ironically, financial crises may allow GSE shareholders extraordinary profit opportunities."