http://www.stockpickr.com/view/answers/55818/
This might be a Dow Jones article:
NEW YORK -- The U.S. Treasury, while remaining tightlipped around details on its
plans for Freddie Mac (FRE) and Fannie Mae (FNM), is
quietly working behind the scenes to lend a helping hand to the struggling
mortgage finance giants.
In recent weeks, Treasury officials have been reaching out to overseas buyers --
including foreign central banks -- of so-called agency
securities, or debt sold by the two companies, to reassure them of the
creditworthiness of these borrowings.
In one such conversation, at the end of August, the Treasury sought to reassure
the Bank of Mexico, according to a person familiar with the matter, of the
soundness of agency securities held by the bank. The discussion with the
Treasury took place as Mexico's central bank, an investor in agency debt, met
with Freddie officials to address concerns it had about these investments.
Treasury officials have also had similar conversations with Japanese investors
who are buyers and holders of agency debt.
The moves are an effort to quell concerns of investors amid uncertainty around
the fate of Freddie and Fannie. They are also aimed at bolstering demand for
this type of financing by the two companies that is critical to their business.
Many analysts and investors say that a government bailout is inevitable if
Freddie and Fannie, which were chartered by the Congress to fuel home ownership,
are unable to
tap the debt market for funding.
The backdoor workings of the Treasury offer a window into how critical Freddie's
and Fannie's access to the debt market is to their
functioning. The two government-sponsored enterprises use the funds to finance
their purchases of home loans from mortgage lenders.
"We are making progress on our work" with the companies' regulator and
government officials, said Treasury spokeswoman Jennifer Zuccarelli.
For the Treasury, the ability of the pair to keep turning over their debt is
paramount. Last month, Congress gave the Treasury Department the authority to
lend money to the firms or take an equity stake.
While Treasury officials have reiterated that they have no imminent plans to
intervene, a deterioration in the housing sector could force their hand if
either company can no longer fund itself.
It is widely expected that such an intervention will likely render worthless the
holdings of existing shareholders. The government is expected to protect holders
of the companies' senior debt and the mortgage-backed securities they guarantee
to avoid a meltdown in financial markets.
A 'Void' If Foreign Buyers Left
Continued access to funding is necessary "to generate the revenue to absorb the
credit losses," said Jim Vogel, an analyst at FTN
Financial.
Freddie and Fannie are a dominant source of funding for home loans, owning or
guaranteeing about $5.2 trillion of mortgages. They have
suffered combined losses of about $14 billion over the past four quarters as
they make provisions for the worst wave of defaults in
decades.
As of Aug. 21, the two companies together needed to refinance more than $225
billion, nearly 87% of which is short-term discount notes, by the end of
September, according to a Wall Street Journal report.In the weeks since, this
figure has reduced as both companies have
successfully refinanced debt on numerous occasions.
Both companies sell discount notes weekly to investors, many of whom reinvest
money from maturing debt. Risk premiums on this debt have
been rising moderately, but buyers continue to snap up securities that
theoretically carry little credit risk.
Freddie and Fannie spokesmen weren't available to comment. A spokesman for the
Bank of Mexico declined to comment. Bank of Mexico Gov.
Guillermo Ortiz, in a chapter contributed to the 2007 book, "Sovereign Wealth
Management," said the central bank had taken a number of
measures to lower the cost of holding foreign reserves, including placing a
"relatively small amount" into mortgage securities.
"Foreign investors have become significantly more important (and) are
significant buyers and holders" of Freddie and Fannie securities, said Richard
Hofmann, an analyst at independent research firm CreditSights.
"How they respond is very important. If they were to stop buying, it would leave
a void."
Investors, particularly in Asia, have shown a healthy appetite for agency
securities. According to a breakdown of about $484 billion of so-called
reference notes sold by Freddie in the last 10 years, about one- quarter of
there were bought by Asian investors, according to a Sept. 3 CreditSights
report. Slicing the data a different way, central
banks were the second-largest buyers of these securities behind investment
managers. Since 2006 through this year so far, central
banks have increased their investments, buying more than one-third of this type
of debt.
Asian investors, who had scaled back their purchases over the summer, have come
back although they are treading carefully. They bought over one-third of
Freddie's $3 billion two-year notes sold Wednesday.
"Both Fannie and Freddie need to come to the debt markets on a regular basis,
and they need to be able to raise senior debt at attractive
rates," said Kathleen Shanley, a senior analyst at research firm Gimme Credit.
They are the "two main pillars supporting the housing market right now."
This might be a Dow Jones article:
NEW YORK -- The U.S. Treasury, while remaining tightlipped around details on its
plans for Freddie Mac (FRE) and Fannie Mae (FNM), is
quietly working behind the scenes to lend a helping hand to the struggling
mortgage finance giants.
In recent weeks, Treasury officials have been reaching out to overseas buyers --
including foreign central banks -- of so-called agency
securities, or debt sold by the two companies, to reassure them of the
creditworthiness of these borrowings.
In one such conversation, at the end of August, the Treasury sought to reassure
the Bank of Mexico, according to a person familiar with the matter, of the
soundness of agency securities held by the bank. The discussion with the
Treasury took place as Mexico's central bank, an investor in agency debt, met
with Freddie officials to address concerns it had about these investments.
Treasury officials have also had similar conversations with Japanese investors
who are buyers and holders of agency debt.
The moves are an effort to quell concerns of investors amid uncertainty around
the fate of Freddie and Fannie. They are also aimed at bolstering demand for
this type of financing by the two companies that is critical to their business.
Many analysts and investors say that a government bailout is inevitable if
Freddie and Fannie, which were chartered by the Congress to fuel home ownership,
are unable to
tap the debt market for funding.
The backdoor workings of the Treasury offer a window into how critical Freddie's
and Fannie's access to the debt market is to their
functioning. The two government-sponsored enterprises use the funds to finance
their purchases of home loans from mortgage lenders.
"We are making progress on our work" with the companies' regulator and
government officials, said Treasury spokeswoman Jennifer Zuccarelli.
For the Treasury, the ability of the pair to keep turning over their debt is
paramount. Last month, Congress gave the Treasury Department the authority to
lend money to the firms or take an equity stake.
While Treasury officials have reiterated that they have no imminent plans to
intervene, a deterioration in the housing sector could force their hand if
either company can no longer fund itself.
It is widely expected that such an intervention will likely render worthless the
holdings of existing shareholders. The government is expected to protect holders
of the companies' senior debt and the mortgage-backed securities they guarantee
to avoid a meltdown in financial markets.
A 'Void' If Foreign Buyers Left
Continued access to funding is necessary "to generate the revenue to absorb the
credit losses," said Jim Vogel, an analyst at FTN
Financial.
Freddie and Fannie are a dominant source of funding for home loans, owning or
guaranteeing about $5.2 trillion of mortgages. They have
suffered combined losses of about $14 billion over the past four quarters as
they make provisions for the worst wave of defaults in
decades.
As of Aug. 21, the two companies together needed to refinance more than $225
billion, nearly 87% of which is short-term discount notes, by the end of
September, according to a Wall Street Journal report.In the weeks since, this
figure has reduced as both companies have
successfully refinanced debt on numerous occasions.
Both companies sell discount notes weekly to investors, many of whom reinvest
money from maturing debt. Risk premiums on this debt have
been rising moderately, but buyers continue to snap up securities that
theoretically carry little credit risk.
Freddie and Fannie spokesmen weren't available to comment. A spokesman for the
Bank of Mexico declined to comment. Bank of Mexico Gov.
Guillermo Ortiz, in a chapter contributed to the 2007 book, "Sovereign Wealth
Management," said the central bank had taken a number of
measures to lower the cost of holding foreign reserves, including placing a
"relatively small amount" into mortgage securities.
"Foreign investors have become significantly more important (and) are
significant buyers and holders" of Freddie and Fannie securities, said Richard
Hofmann, an analyst at independent research firm CreditSights.
"How they respond is very important. If they were to stop buying, it would leave
a void."
Investors, particularly in Asia, have shown a healthy appetite for agency
securities. According to a breakdown of about $484 billion of so-called
reference notes sold by Freddie in the last 10 years, about one- quarter of
there were bought by Asian investors, according to a Sept. 3 CreditSights
report. Slicing the data a different way, central
banks were the second-largest buyers of these securities behind investment
managers. Since 2006 through this year so far, central
banks have increased their investments, buying more than one-third of this type
of debt.
Asian investors, who had scaled back their purchases over the summer, have come
back although they are treading carefully. They bought over one-third of
Freddie's $3 billion two-year notes sold Wednesday.
"Both Fannie and Freddie need to come to the debt markets on a regular basis,
and they need to be able to raise senior debt at attractive
rates," said Kathleen Shanley, a senior analyst at research firm Gimme Credit.
They are the "two main pillars supporting the housing market right now."
