Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets

[Celebration]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aDjJYMSphyM0&refer=worldwide

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

The Federal Housing Finance Agency, which placed the two companies in conservatorship on Sept. 7, directed them last month to start increasing their purchases of loans and mortgage-backed securities as the Treasury seeks to absorb underperforming and illiquid assets from financial companies.

``For now, they're under conservatorship and they have to be used to keep the flow of capital going to the housing market,'' former Treasury Secretary Lawrence Summers said in an interview on Bloomberg Television's ``Conversations with Judy Woodruff.'' ``They're important to maintaining the flow of government finance'' and need to be used actively, he said.

Adding underperforming assets to Fannie and Freddie's combined $1.52 trillion mortgage portfolios would come at a time when the two mortgage-finance companies already hold as much as $210 billion of bad debt that may be eligible itself for the Treasury's relief program, their regulator said Oct. 5.

Oopsie.

[Celebration]

1. Okay, I am kicking this

We, the taxpayers, now own Freddie and Fannie, and we, the taxpayers have now been ordered to buy 40 billion dollars a month of troubled assets.

Keep in mind that the Congress has not voted on this, and that it is over and above the 700 billion dollar bailout.

[bain_sidhe]

2. You see what they're doing, here, don't you?

The 700 billion dollar bailout money came with strings attached, oversight (though not much), reporting requirements, and review. They can do this without those pesky details.

[Celebration]

3. banking committee needs to get on this!! ASAP

I may put in some calls tomorrow.

[pam4water]

4. Wow, this sounds like a really great way to make sure Fannie Mae and Freddie Mac fail.

I thought that Fannie Mae and Freddie Mac's combined mortgage portfolios was close to 5 trillion than 1.5 trillion. Or is there a distinction between the number of mortgages that whole and the number of mortgages they back?

[Celebration]

5. Well, they have already failed

At least we are on the hook for the whole thing. Now they have been ordered to buy more mortgage backed securities. I'd like to know the protocol on that!! Will there be reverse auctions?

[pam4water]

6. If at first you fail, you can still fail, fail again.

To point out the obvious, they aren't using Fannie and Freddie to buy up the bad assets from their buddies, because they aren't aloud to use the $700 Trillion any more.