WASHINGTON–The Treasury Department's pledge of unlimited support for Fannie Mae and Freddie Mac may foreshadow changes to the Obama administration's Home Affordable Modification Program.
Processing Content
American Banker, an affiliate of Credit Union Journal, noted that Treasury said last week that it would inject as much money "as necessary" into Fannie or Freddie over the next three years to ensure that the government-sponsored enterprises have positive net worth. Previously the government had committed to buy up to $200 billion of preferred stock in each GSE. Those commitments, from which Fannie has drawn $60 billion and Freddie has taken $51 billion, were scheduled to expire at yearend.
Analysts said one reason the Treasury increased its commitment was that it expects to expand the modification program to let servicers reduce borrowers' principal balances. Such an expansion would compound the GSEs' losses and further erode their capital.
"Once they do principal reductions, they'll take a hit on the outstanding balance and need to write that off," said Ed Pinto, a consultant and former chief credit officer at Fannie Mae. "So they're creating room here by taking the caps off in terms of support they're offering to Fannie and Freddie."
As it stands, neither GSE would need more than $200 billion from the government to cover foreseeable losses, observers told American Banker.
