The housing giants stumbled badly in the financial crisis after backing too many troubled loans. Late last year, the government put them into conservatorship, and since then they have provided most of the liquidity in the mortgage market, allowing homeowners to refinance and buy new homes. Now, announcing new long-term support for the companies, the Obama administration has effectively transformed them into arms of the government, using them to help carry out its mortgage modification programs.
The agencies have already used $112 billion of a $400 billion pledge from the Treasury Department to stay afloat, but investors have remained nervous about their future. To quell uncertainty, the government said it would remove the $400 billion financial cap for three years.
The lifeline would keep Fannie and Freddie from tumbling into a downward spiral of debt, but it effectively tethers the companies more tightly to the government, which already owns 79.9 percent of each. The Obama administration has said it will issue a plan on the future role of Fannie and Freddie in February.
The announcement “should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis,” the Treasury said in a statement.
My hunch, the money is going in one door, and going right out the other. The question is who is lining their pockets with out tax payer dollars?
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