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Fannie Mae, Freddie Mac Make Moves to Help Consumers

Created: On March 20, 2008 @ 10:15 am In

The Fed’s recent moves to lower interest rates aren’t really making a dent in the tsunami of credit woes U.S. consumers are facing. Some economists call the lower Fed Funds rate a tax on the middle class, as this increases inflation, driving the dollar down and raising the price of oil. It’s more like driving a stake into the heart of the middle class.

But as the Fed stands by, fiddling a love song to banks and a swan song to consumers, the U.S. Office of Federal Housing Enterprise Oversight (HEO) made a move. The HEO, which oversees Fannie Mae and Freddie Mac, relaxed the two agencies’ capital requirements so they could pump $200 billion of financing for home loans to consumers.

The mandatory cash reserves Fannie and Freddie are required to carry, about $20 billion between the two, will be cut by about 33 percent under the plan, part of a broader strategy to ease the credit crisis that is making it tough for both consumers and businesses to borrow. The goal is to make money available so new home buyers can take out loans, and home owners facing mortgage interest rate resets can refinance into more affordable mortgages. This is the third step by the HEO to enable the two agencies to take up more of the burden in the mortgage market.
Last month’s $168-billion economic stimulus package included a temporary increase in the cap, from $417,000 to $729,750 in high-cost markets, on mortgages that the companies can purchase or guarantee. And a few weeks ago, the HEO freed Fannie and Freddie of a combined $1.5 trillion cap on their mortgage-investment holdings. Call it a reward for filing timely financial statements following multibillion-dollar accounting scandals.
The HEO estimates these three moves should allow Fannie and Freddie to purchase or guarantee roughly $2 trillion in mortgages this year. They now hold about $4.9 trillion in home-loan debt. So while the middle class consumer may be staked through the heart (thanks Fed!) and barely staying afloat while riding the wave of credit woes, at least the HEO is stepping up.

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