Is Barney Frank Scaring Away Private Fannie Mae and Freddie Mac Investors?
Mortgage interest rates improved slightly this week despite a positive spin on the economic news front. But Friday's "only 36,000 lost jobs" employment report was interpreted by investors as mortgage friendly. So do the investors know something the politicians do not? Rates next week, however, could be on the upswing due to some comments made by US Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee.
Barney Frank essentially gave notice to the debt holders of the GSE's, Fannie Mae and Freddie Mac, that they should not consider their debt investments to be fully backed by the US government, even though these companies have fallen under Federal control. Frank added that when Fannie Mae and Freddie Mac are ultimately restructured, he wants to see investors "take a haircut" on their investments.
So what are Barney Frank's true intentions? Well, if the private debt holders of Fannie Mae and Freddie Mac decide to cease their purchases of new debt issues, and if they sell off their current investment holdings, the cost of funds for these GSE's would increase, resulting in a rise in mortgage rates.
Of course, the Treasury continues to prop up these entities. So perhaps Barney Frank's hope is to scare away private investors in order to make Fannie Mae and Freddie Mac even more dependent on the government than they already are. We can debate his true intentions, but this could certainly be the end result.