Freddie Mac may slow the purchase of mortgages from banks, reducing the amount of credit available to borrowers and driving up mortgage rates. Bloomberg reports that:
"`This just means much less credit availability for mortgage borrowers,'' said Paul Colonna, who manages more than $100 billion as chief investment officer for fixed income at GE Asset Management in Stamford, Connecticut. ``They were teed up to be saviors of the mortgage crisis, but now they've got their own capital issues.''
I personally doubt that the government would allow this to happen. Bot Freddie and Fannie are heavily relied upon by the Federal government to keep the mortgage market moving.
As the article states:
"The $5.5 billion share sale planned by Freddie Mac may not be enough, according to Friedman Billings Ramsey & Co. analyst Paul Miller. He estimated in a report today that the companies will each need to raise $10 billion to $15 billion to replenish capital. The U.S. government will seek to avoid having the companies shrink their portfolios, he added.
``The government may have to intervene through a capital infusion, and in an extreme-case scenario, through taking on the agencies' balance sheet,'' he said.
This is another piece in the market realignmnent which is taking place which I believe will drive down credit availalbe and real estate prices for many, many years.
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Fannie and Freddie Problems Show Collapse of Old Finance Regime by Sam Cass - Jul 10, 2008.
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