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Fannie Mae in trouble????? Not hardly

After reading some comments made by folks on the Mortgage Bankers Association website I couldn't help but comment. Some folks believe that the taxpayers are bailing out Freddie Mac and Fannie Mae. This is just not the case. In fact, the Treasury plan is simply a backstop to help restore confidence in the organizations. These backstop measures would support the capital the companies that are required to hold as protection in dire circumstances (keeping in mind that their regulator has already said they are currently well capitalized). Treasury's plan is comprised of two parts - a temporary increase in the existing line of credit the GSEs currently have with Treasury in the form of a temporary authorization for Treasury to buy stock and other obligations in Fannie Mae and Freddie Mac and additional oversight authority over the two companies by the congress and senate. Nothing to do with a bailout or a taxpayer-funded bailout. The companies already have a line of credit with Treasury (which they have not used), Treasury simply wants to make sure it is sufficient to serve as a backstop if needed. This is more like the small business that borrows more money during different seasons. Christmas, back to school, Easter etc. As to the stock purchase, if Treasury were to buy stock in the either or both companies, it would most likely negatively impact existing shareholders (and thus not be bailing anyone out). Keep goverment out of this and we will be much better off.

Posted by Richard Baggett on 07/25/2008 02:19 PM

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