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Fannie Mae's and Freddie Mac's Financial Status - Frequently Asked Questions (Paperback)
Loot Price: R396
Discovery Miles 3 960
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Fannie Mae's and Freddie Mac's Financial Status - Frequently Asked Questions (Paperback)
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Loot Price R396
Discovery Miles 3 960
Expected to ship within 10 - 15 working days
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Fannie Mae and Freddie Mac are charted by Congress as
government-sponsored enterprises (GSEs) to provide liquidity in the
mortgage market and promote homeownership for underserved groups
and locations. They purchase mortgages, guarantee them, and package
them in mortgage backed securities (MBSs), which they either keep
as investments or sell to institutional investors. In addition to
the GSEs' guarantees, investors widely believe that MBSs are
implicitly guaranteed by the federal government. In 2008, the GSEs
financial condition had weakened and there were concerns over their
ability to meet their obligations on $1.2 trillion in bonds and
$3.7 trillion in MBSs that they had guaranteed. In response to the
financial risks, the federal government took control of these GSEs
in a process known as conservatorship as a means to stabilize the
mortgage credit market. Congressional interest in Fannie Mae and
Freddie Mac has increased in recent years, primarily because the
federal government's continuing conservatorship of these GSEs, at a
time of uncertainty in the housing, mortgage, and financial
markets, has raised doubts about the future of the enterprises and
the potential cost to the Treasury of guaranteeing the enterprises'
debt. Since more than 60% of households are homeowners, a large
number of citizens could be affected by the future of the GSEs.
Congress exercises oversight over the Federal Housing Finance
Agency (FHFA), which is both regulator and conservator of the GSEs,
and is considering legislation to shape the future of the GSEs.
Legislation introduced in the 112th Congress, the future of the
GSEs, and ways to reduce the cost to the federal government are
analyzed in CRS Report R41822, Proposals to Reform Fannie Mae and
Freddie Mac in the 112th Congress, by N. Eric Weiss. Estimates of
the eventual total cost to the federal government of supporting the
GSEs use different baselines and vary widely. 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. Under terms of the federal
government's support agreement as amended and effective on August
17, 2012, the enterprises will pay the Treasury all of their
quarterly profits (if any). Under the previous agreements, the
enterprises paid Treasury dividends of nearly $20 billion annually
(10% of the support). Paying the federal government all profits
earned in a quarter could prevent the GSEs from accumulating funds
to redeem the senior preferred stock. However, it would appear that
the GSEs could make quarterly redemptions. The financial condition
of the GSEs appears to be improving. In the first and second
quarters 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.
General
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