FHFA Head Warns Fannie Mae and Freddie Mac May Need a Capital Injection from the U.S. Treasury

Source: Michael Krieger, Liberty Blitzkrieg

Earlier today, we learned that Fannie Mae recently rolled out a new program known as “Home Ready,” which would allow borrowers to obtain a 3% downpayment mortgage with no minimum cash contribution.
Now we learn this.
From MarketWatch:

WASHINGTON (MarketWatch) — Fannie Mae and Freddie Mac are at risk of needing an injection of Treasury capital after the latter reported its first quarterly loss in four years, the director of the Federal Housing Finance Agency said Tuesday.

FHFA Director Mel Watt issued a statement following mortgage-finance company Freddie Mac’s $475 million third-quarter loss, its first quarterly loss in four years.
“Volatility in interest rates coupled with a capital buffer that will decline to zero in 2018 under the terms of the senior preferred stock purchase agreements with Treasury will likely make both Enterprises increasingly susceptible to the possibility of quarterly losses that could result in draws going forward,” Watt said.
Freddie Mac said its loss was driven by interest rate changes that soured the value of derivatives it holds.

You really can’t make this stuff up.
That said, this should come as no surprise to Liberty Blitzkrieg readers…
Government Watchdog Warns – Fannie, Freddie Could Need Another Bailout
Mel Watt, Federal Housing Finance Agency Head, is Pushing Banks to Make Extremely Risky Home Loans
Leverage in PE Deals Soars Despite Fed Warnings; Amidst Insatiable Demand for Risky Fannie Mae Debt

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