Fannie, Freddie May Dodge Bailout
- By:
- Bill Rice | Wed, 09/03/2008
On the heels of a reasonably priced Freddie Mac auction of $1 billion in 5-year notes Fannie Mae and Freddie Mac's stock continues to climb out. This re-issuance priced at a spread of 95.6 basis points more than the 5-year US Treasury notes--signaling a reasonable risk premium and capability to continue issuing debt.
Alarms Sound, No Fire Yet
Despite alarm bells on the mid-August pull-back of foreign investors, Barron's infamous Bush administration insider discussing their inability to raise capital, and rating agencies downgrading their credit ratings to the lowest investment grade--Fannie and Freddie ride cautiously turning investor confidence.
Fannie, Freddie Shares Rally
The two government sponsored entities (GSEs) are riding a week long 30 percent rally in share value. Most of this confidence is coming from deeper consideration of eroding, but still significant capital reserves. Both GSEs were required to bolster capital reserves following accounting scandals that hit in the early 2000s, leaving each with in excess of 15 percent of minimum capital requirements. This places their combined reserves in excess of $80 million.
Housing Market Continues Uncertainty
Fears continue to swirl around an uncertain housing market that certainly has not hit bottom. Foreclosures and defaults continue to mount at an unprecedented and unpredictable rate. As a result, investors are betting on an overstated calamity--driving the stock to opportunistic discounts.
Paulson Holds "Bazooka" in Reserve
There continues to be discussion and even advocation of nationalizing and fracturing the GSEs into smaller, healther private entities, but for now it looks like investors are going to allow Treasury Secretary Paulson to keep his "bazooka" option holstered.
Find Mortgage Rates
National Rates
| Loan Type | Today |
|---|---|
| 30 yr fixed |
|
| 15 yr fixed |
|
| 5/1 ARM | 3.99 |
Rates may contain points
Browse Mortgage Rates
Featured Guides
Browse our comprehensive guides to popular topics related to mortgage and personal finance.