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Strategies & Market Trends : Freddie Mac (FRE) pops the housing bubble

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To: KeepItSimple who started this subject10/23/2003 2:17:12 AM
From: KeepItSimple   of 50
Treasury mulls cutting Fannie and Freddie's loan guarantees:

Look out below!

Treasury Says Administration Open To Ending GSE Borrowing Line
Wednesday October 22, 6:12 pm ET
By Rebecca Christie, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- If Congress wants to end Fannie Mae (NYSE:FNM - News) and Freddie Mac's (NYSE:FRE - News) ability to borrow from the Treasury, the administration is game, a top Treasury official suggested Wednesday.

Wayne Abernathy, Treasury's assistant secretary for financial institutions, said the Bush administration isn't currently seeking to repeal Fannie Mae and Freddie Mac's ability to borrow from the government. Under current law, the Treasury Secretary can purchase up to $2.25 billion of each company's debt in times of crisis.

But Abernathy said the administration would consider ditching that provision if lawmakers desired. "If in the process of legislation, if Congress wants to take on this issue we're open to having that discussion," Abernathy said in response to a question on that score.

Abernathy's comment echoed 2000 remarks by Gary Gensler, a senior Treasury official in the Clinton administration. Gensler actively sought to eliminate the so-called Treasury line of credit, since government-sponsored enterprise securities are already required to make clear that they aren't obligations of the U.S. government.

Gensler's remarks caused a stir in financial markets that lingered for some time. Abernathy's comments Wednesday had only a little market impact.

There has been no recent movement on Capitol Hill toward abolishing the Treasury line of credit, and the GSEs have lobbied to keep it for its symbolic value. The Treasury provision is one of the elements comprising the GSEs' implicit government guarantee, as perceived by financial markets.

The Bush administration has not directly tackled Treasury's lending authority. Instead, it has focused on the need for better disclosure, and more recently it has called for a stronger regulator that has broader powers over housing-related GSEs.

Treasury officials already have opposed one legislative proposal to move GSE regulation to Treasury, saying the bill didn't add enough power to justify a move. Earlier this month, Treasury Secretary John Snow told lawmakers that a weak Treasury-led regulator could actually make things worse by strengthening the GSEs' perceived government backing.

Abernathy seconded Snow's opinion in his comments Wednesday. He also reiterated the administration's view that any GSE regulator needs to have the power to approve new product lines as well as supervise existing business.

"Otherwise, it's kind of phony," Abernathy said. "You would give the sign of being part of the Treasury Department without any of the substance."

-By Rebecca Christie, Dow Jones Newswires; 202 862 9249;
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