Staying "Bought"
Bank Lawyer’s Blog:
It’s amusing to watch Senators Dodd and Shelby tout their special interest bailout plan as a clever means to get maybe half a million borrowers (and perhaps their lenders, even after the required “haircut”) some relief from having to suffer the consequences of their poor decision-making capabilities, without putting the US taxpayers at risk, by palming off the risk on Freddie Mac and Fannie Mae. As if the “implicit” guaranty of the full faith and credit of the United States wouldn’t come into play if either Freddie or Fannie were to suffer a serious setback because subprime borrowers turn out to be as subprime in new loans as they were in their existing loans.
Fannie and Freddie aren’t doing cartwheels about this variation on a theme by Barney, either.
Freddie Mac is nervous about the direction the bill might take. Company
spokesperson David Palombi said if the bill is “not applied carefully”
it could make the troubled U.S. mortgage market even worse.
Palombi said it is “essential” to that the legislature doesn’t raise capital requirements to where Freddie can’t fulfill its mission to help stabilize the U.S.
mortgage market and be good to its shareholders. Both Freddie and
fellow government-backed lender Fannie Mae have had their required lending capital cushions slashed to 15.0% of
assets, over statuatory minimums, from 30.0%, in the last eight weeks…
Brian Faith, a Fannie Mae spokesperson, said Friday that Fannie is
all for the part in the legislation on deck that creates a “stronger,
independently funded, bank-like regulator” to ensure that that the two
companies behave themselves. Faith added that the legislature needs to
“take into account the financial condition of the companies over time.”
In other words, by raising capital requirements, the bill would reduce both Fannie’s and Freddie’s ability to leverage capital, and…