Wednesday, March 19, 2008

Fannie, Freddie Cap Reduction

OFTHEO said it is reducing loan requirements for Fannie and Freddie to 20% from 30%! Freddie and Fannie will be raising additional capital.

The ailing U.S. mortgage market should get a boost from the decision, U.S. Treasury Secretary Henry Paulson said. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," Mr. Paulson said in a statement.

He added that with Fannie Mae and Freddie Mac being significant participants in the mortgage market, he is "encouraged" by the announcement, which should make more financing available and provide additional support to the market.

This sounds funny because just few months ago the administration was against it.

I will say this again. We are raising the limits at the precise time we should be lowering them. If house prices go down as predicted by most banks then they will need additional capital. By lowering the ratio now, we are removing the safety net. They will need to raise even more capital later on.

How long before the fed starts buying subprime and other junk from everyone!

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