Regulator warns Fannie, Freddie may need to draw on Treasury funds next year

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Regulator warns Fannie, Freddie may need to draw on Treasury funds next year

Regulator warns Fannie, Freddie may need to draw on Treasury funds next year

Washington Examiner-

Fannie Mae and Freddie Mac’s government overseer warned Congress Thursday that the two bailed-out mortgage giants face the possibility of having to draw billions of dollars from the Treasury Department by next year, a risk that could roil markets if that borrowing is seen as another bailout.

Mel Watt, the director of the Federal Housing Finance Agency, told a panel of senators Thursday that the government-sponsored enterprises will see their capital buffer reduced to zero under law by the start of next year, leaving the companies at the mercy of markets. Any losses would force them to draw on their line of credit at the Treasury that was created when they were bailed out nearly a decade ago, creating the perception of a taxpayer bailout even if not the reality.

“We reasonably foresee that this could erode investor confidence” in the $5 trillion market of mortgage securities backed by the two companies, Watt warned the Senate Banking Committee. “This could stifle liquidity in the mortgage-backed securities market and could increase the cost of mortgage credit for borrowers.”

Watt told the senators not to be surprised by any steps he might take to prevent that outcome, such as suspending dividend payments from Fannie and Freddie to the Treasury.

[WASHINGTON EXAMINER]

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