Thursday, September 11, 2008

Fannie and Freddie: A Lot Has Changed in 6 Months

Six months ago, Fannie Mae and Freddie Mac were supposed to be the saviors of the housing market. Congress even placed them at greater financial risk by raising the conforming loan limit, so they could help rescue the California housing market. These housing market superheroes don't look so super anymore.

From The New York Times:
The seizure of Fannie and Freddie is all the more surprising because, as recently as late March, Washington viewed the companies as saviors of the housing market and the economy, rather than as risks to them. Instead of requiring Fannie and Freddie to scale back, regulators gave them a green light to buy and guarantee more and bigger mortgages.

On March 19, James B. Lockhart, their chief regulator, dismissed swirling rumors about their financial health. “The actions we’re taking today,” Mr. Lockhart declared, referring to a decision to ease restrictions on how much capital they were required to hold, “make the idea of a bailout nonsense in my mind. The companies are safe and sound, and they will continue to be safe and sound.”

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