All eyes have been on the Federal Reserve in recent months. But other federal agencies are playing increasingly important roles as well.
Although the Bush administration has decried congressional efforts to rescue the mountain of troubled mortgages, it has been taking steps that do precisely that, but without the need of a new federal agency or congressional approval.
And just like some private-sector banks that brought off-balance-sheet entities such as structured investment vehicles back onto the balance sheet, the federal government appears to be doing something very similar.
Specifically, the liberalization of the Fannie Mae (FNM - commentary - Cramer's Take) and Freddie Mac (FRE - commentary - Cramer's Take) and the 12 Federal Home Loan boards solidifies the murky relationship between the federal government and the government-sponsored enterprises. It also will provide something on the magnitude of $350 billion of liquidity to the mortgage market.
The Office of Federal Housing Enterprise Oversight (OFHEO) has taken three steps in recent weeks. First, the definition of "nonconventional" (i.e., jumbo loan) was expanded. Second, Fannie and Freddie's portfolio caps were lifted. Third, surplus capital requirements have been cut from 30% to 20%.
OFHEO Director James Lockhart said that the capital surplus requirement change will immediately free up around $200 billion in fresh capital, and that the agency will focus on jumbo mortgages, subprime mortgages that qualify for refinancing and the modified (interest and/or principal) mortgages.
In addition, the Federal Home Loan Board may soon be allowed to increase the amount of mortgages it can hold, which is estimated to be worth roughly another $150 billion.
The purists may complain about the extension of the government's role, but of all the sectors of the economy, historically the housing market has among the largest roles for the government. Promoting home ownership is regarded as a public good. Yet, to be sure, these steps fall far short of the nationalization of the U.S. mortgage market.
If these estimates are fair, the $350 billion of added liquidity is larger and more targeted than the Fed's $100 billion term auction facility and $200 billion term securities lending facility.
P.S. Will you be there when Cramer makes his next move?
Strong brands and companies with vast market exposure can help bolster your portfolio. Jim was able to lock in a 64% gain by buying Ingersoll-Rand at $13 and selling at $22.50. Action Alerts PLUS members were the first to see these moves. Were you among them? Get Free Access Today!
Economy Inside An Inter-Meeting Fed Move 1/9/2008 10:26 AM EST Reviewing the transcript of a past inter-meeting conference call answers some questions for traders and investors.
Economy Pessimism Is Played Out 12/14/2007 4:22 PM EST As the dust settles, market participants should consider taking a more sanguine view.
Marc Chandler has been covering the global capital markets in one fashion or another for nearly 20 years, working at economic consulting firms and global investment banks. Currently, he is the chief foreign exchange strategist at Brown Brothers Harriman. Recently, Chandler was the chief currency strategist for HSBC Bank USA. He is a prolific writer and speaker and appears regularly on CNBC. In addition to being quoted in the financial press, Chandler is often a guest writer for the Financial Times. He also teaches at New York University, where he is an associate professor in the School of Continuing and Professional Studies. While Chandler cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.
RSS FEEDS
PODCASTS
