Fannie, Freddie proving too big to shrink

–(www.FinancialNewsUSA.com)– 01/02/2010 – Mortgage Investment industry news provided by Financial News USA. The government’s Christmas Eve pledge of unlimited financial aid to mortgage giants Fannie Mae and Freddie Mac is aimed at making sure the housing market doesn’t take another turn for the worse and cause the economic recovery to unravel.

This insurance policy taken out by the Treasury Department will help keep mortgage rates low, and may wind up being a gift of sorts to struggling homeowners and banks. But there’s a catch: the housing crisis is now likely to cost taxpayers much more.

The Obama administration’s latest lifeline to Fannie and Freddie will cover unlimited losses through 2012, lifting an earlier cap of $400 billion. It also eases restrictions on the size of the companies’ investment portfolios. That’s a reversal of the Bush administration’s September 2008 plan to shrink the size of the companies’ holdings of mortgage-backed securities. [Read the full article]

Lawmakers from both political parties have asked for a probe into the Treasury Department’s move to uncap potential aid to Fannie Mae (FNM Quote) and Freddie Mac(FRE Quote). “This cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U.S. taxpayers and acting as a back door,” Kucinich said, addressing issues related to the Troubled Asset Relief Program in a statement released by his office. Reps. Scott Garrett (R., N.J.) and Spencer Bachus (R., Ala.) also raised similar concerns in a letter to Rep. Barney Frank (D., Mass.), who chairs the Financial Services panel. “With hundreds of billions of taxpayer dollars committed to these two organizations and trillions of dollars in total taxpayer exposure, this level of oversight is plainly insufficient,” the two representatives wrote in their letter. Kucinich also wants to investigate what options policymakers have to deal with housing issues. [Read the full article] About Financial News USA

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