Fannie/Freddie support increased

December 25, 2009

No better time than Xmas Eve to announce the expansion of the administration’s housing slush fund. Previously, Fan and Fred each had a $200 billion credit line from Treasury. Though they’ve drawn only $111 billion so far, the administration thought it prudent to offer unlimited support … to give the markets “confidence.” Personally, I think the markets could do with a bit less confidence. Confidence leads to complacency, to chasing risk, to progressively easier credit terms that inflate bubbles.

In other words, stability creates instability.

By the way, read to the bottom for an interesting bailout factoid you may not have known, but first the story…  (Christie/Shenn, Bloomberg)

The U.S. Treasury Department will remove the caps on aid to Fannie Mae and Freddie Mac for the next three years, to allay investor concerns that the companies will exhaust the available government assistance.The two companies…have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.

Treasury says the two aren’t likely to need the full $400 billion they’d been offered, but its authority to expand the guarantee unilaterally expires Dec 31. Tim Geithner doesn’t want Congress getting in the way if he needs to offer more support later…

Besides expanding taxpayers’ commitment to Fan and Fred, the diktat demanding they shrink their balance sheets has been watered down.

The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their portfolios of mortgage assets. Previously, the companies were instructed to reduce their portfolios at a rate of 10 percent a year. Now, they will be required to keep the value of their portfolios below a maximum limit, currently $900 billion, that will go down by 10 percent a year.

This means they will not need to take immediate action to trim their holdings and could allow them to rise. Fannie Mae’s portfolio ended October at $771.5 billion and Freddie Mac’s holdings at the end of November were $761.8 billion, according to the latest figures released by the companies.

Obama needs a slush fund to prop up housing, especially after Ben Bernanke stops printing money to buy mortgage-backed securities at the end of March. Fan and Fred will continue to serve nicely.

One other thing you probably didn’t know. Treasury has its own MBS purchase program running parallel to the Fed’s. It has accumulated quite a bit of paper…

The Treasury said today that it is ending its mortgage- backed security purchase program as of Dec. 31, after about $220 billion in purchases.

That’s in addition to the $1.25 trillion and $175 billion the Fed is spending on MBS and Fannie/Freddie debt respectively.

We may be getting paid back part of one bailout — TARP — but the only reason banks have the capital to pay that back is because of balance sheet protection they get from other bailouts, not to mention general taxpayer support for asset prices.


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Just the other day I sold a “Victory Liberty Loan” medallion on Ebay. These were awarded to those who bought war bonds to support the U.S. WWI war effort.

How times have changed. Now our money is taken without even asking for it and taken before we even earn it. Whether it’s spent in Iraq and Afghanistan or with Fannie and Freddie, most people don’t even realize how much they are in debt thanks to Uncle Sam.

Think there is any chance a medallion that says something like “The Involuntary Bail-Out” will be issued (to every man, woman and child in the U.S.)?

Posted by CB | Report as abusive

[…] Fannie/Freddie support increased Rolfe Winkler. Really good detail here, bottom line, the stealth bailouts just keep getting bigger and bigger. […]

Posted by Links Christmas Day « naked capitalism | Report as abusive

Clean the system! Show the people these compelling, very instructive histories — ongoingly:

“Real Homes, Real Dow” at tml

Posted by Ed | Report as abusive

A left/right effort against bailing out Freddie and calling for an investigation of Rahm Emanuel.

FYI: Jane Hamsher, Grover Norquist Call for Rahm Emanuel’s Resignation msher-grover-norquist-call-rahm-emanuel s-resignation

Posted by Michael Ostrolenk | Report as abusive

Another sign, that this economy is all smoke and mirrors. The collapse is coming very soon now. Cash, gold, silver and land, so you can eat.

Posted by Rick | Report as abusive

[…] Treasury Department, as reported by Bloomberg, and commented on by Rolfe Winkler and Huffington Post (among others) noted, considerably increased its Freddie and Fannie safety net, […]

Posted by Will Continued Stealth Bailout of Housing Produce Unwanted Side Effects? « naked capitalism | Report as abusive

[…] Fannie/Freddie support increased »  U.S. Uncaps Support for Fannie, Freddie »  Government by Stealth: the GSE affair […]

Posted by Few Notes on the Current Market Situation | Report as abusive

So, is there a difference if the Treasury creates money out of thin air to buy MBS or the Fed creates money out of thin air to buy MBS? Of course, it is a bit surprising–and the fact that the news was released on Christmas Eve means the Powers That Be are ashamed of admitting it–but it does reveal a vital fact: the Boyz in Washington are scared to death of higher mortgage interest rates and will do almost anything to keep them down. If Bernanke won’t be suckered into doing it anymore than the Treasury will just have to do it directly.

I am curious, however, as to where these purchases show up on the daily or monthly Treasury statement. With my admittedly rudimentary knowledge I can’t find a line item for them. Can anyone help?

Posted by But What do I Know? | Report as abusive

[…] Fannie and Freddie ever actually fade away?  (Breakingviews, Clusterstock, Rolfe Winkler, naked […]

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[…] Fannie and Freddie ever actually fade away?  (Breakingviews, Clusterstock, Rolfe Winkler, naked […]

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[…] Fannie/Freddie support increased […]

Posted by 5 Thoughts on the Current Market Situation | Reaction Radio | Report as abusive

[…] Fannie and Freddie ever actually fade away?  (Breakingviews, Clusterstock, Rolfe Winkler, naked […]

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Reply To “What Do I Know”
Re: Purchase Reporting on Treasury Statement

GSE MBS purchases by Treasury are reported only on the Monthly Treasury Statement; see Schedule E (Net Activity, Guaranteed and Direct Loan Financing), under Dept of Treasury. Page 27 if you are looking at Nov, 2009.

These purchases accounted for 80% of all non-TARP Schedule E activities in fiscal 2009, and 50% in first two months of fiscal 2010

Posted by Scott Schaefer | Report as abusive

[…] Fannie/Freddie support increased […]

Posted by Five Notes on the Current Market Situation | Finance Blog | Report as abusive

[…] 009/12/25/fanniefreddie-support-increase d/ […]

Posted by ACORN-The Community Reinvestment Act (CRA)-Automaker Labor Unions « A Nation ADrift-Why? | Report as abusive

[…] the MBS purchases and guarantees of Fannie and Freddie (whose official exposure limits were raised literally to infinity at the end of 2009, rendering quaint TARP inspector Barofsky’s previous exposure estimate of […]

Posted by Bailout World, 2nd Stage of Kleptocracy (New Feudal War 2 of 4) « Volatility | Report as abusive