WASHINGTON – The Bush administration made clear yesterday what had been implied in recent weeks, that debt issued by either Fannie Mae or Freddie Mac is now explicitly guaranteed by the federal government.
The companies were taken over by the government in September and were given a guaranteed credit line with the Treasury, which amounts to a federal guarantee of their debt, James Lockhart, director of the Federal Housing Finance Agency, the new regulator over the two, told Congress yesterday. "The conservatorship and the access to credit by the U.S. Treasury provide an explicit guarantee to existing and future debtholders of Fannie Mae and Freddie Mac," said Lockhart, during testimony before the Senate Banking Committee.
The announcement is important for credit union, who hold some $50 billion worth of bonds issued by one of the two secondary mortgage market giants.
"Spreads have widened for the GSEs and many other issuers of securities. As confidence returns and investors understand the strength of the Treasury agreements, we would expect that to narrow," said Lockhart.
Lockhart said that he and the Treasury Department have urged the two so-called government-sponsored enterprises to add liquidity to mortgage markets by purchasing assets and by expanding their portfolio of home loan investments. But Lockhart said that Fannie Mae and Freddie Mac should not buy "toxic" mortgages, those held by credit unions and banks that are diminished in value.
