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Fannie Mae's and Freddie Mac's Financial Problems (Paperback)
Loot Price: R396
Discovery Miles 3 960
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Fannie Mae's and Freddie Mac's Financial Problems (Paperback)
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Loot Price R396
Discovery Miles 3 960
Expected to ship within 10 - 15 working days
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The continuing conservatorship of Fannie Mae and Freddie Mac at a
time of uncertainty in the housing, mortgage, and financial markets
has raised doubts about the future of these enterprises, which are
chartered by Congress as government-sponsored enterprises (GSEs)
and whose debts are widely believed to be implicitly guaranteed by
the federal government. In the second quarter of 2012, both Fannie
Mae and Freddie Mac reported profits for the first time since the
fourth quarter of 2006. Also, the second quarter of 2012 was first
time that neither GSE had to request financial support from the
Treasury. The Treasury has agreed to buy mortgage-backed securities
(MBSs) from the GSEs and to raise funds for them. Initially, each
GSE gave Treasury $1 billion in senior preferred stock and warrants
to acquire, at nominal cost, 80% of each GSE. Treasury holds more
than $187 billion of preferred stock in the two GSEs. Treasury has
agreed to invest whatever is required to maintain GSE solvency
through calendar year 2012. Now the formerly implicit guarantee is
nearly explicit. In addition to Treasury's purchases of senior
preferred stock, the Federal Reserve (Fed) has purchased GSE bonds
and MBSs. Under terms of the federal government's purchase of their
preferred stock, the enterprises are required to pay the government
dividends of nearly $20 billion annually (10% of the support).
Housing, mortgage, and even general financial markets remain in an
unprecedented situation. Estimates of the total cost to the federal
government use different baselines and vary widely. The FHFA
estimates that Treasury is likely to purchase $220 billion-$311
billion of senior preferred stock by the end of 2014. The
Congressional Budget Office estimates the budget cost to be more
than $300 billion. Standard & Poor's has estimated the cost at
$280 billion plus $405 billion to create a replacement system. Once
Treasury's support for Fannie Mae and Freddie Mac ends, sometime
after 2012, the GSEs will be challenged to pay the 10% annual cash
dividend contained in their contracts. The enterprises could
instead pay a 12% annual senior preferred stock dividend
indefinitely. In August 2011, Standard & Poor's downgraded the
debt of the federal government, Fannie Mae, and Freddie Mac. To
date, there is no evidence that this has increased mortgage
interest rates, but the impact may take longer to occur or to be
detected.
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