LyrArc Article Gist
For years the WSJ opinion editorials pointed out weaknesses in Fannie Mae and Fredddie Mac, and the possibility that the Government may have to bail out these companies because of their aggressive expansion and lack of adequate supervision oversight by the government or supervisory financial authorites. This time may have arrived as the 2 companies are the only ones left actively dominating the mortgage market, handling 80% of all mortgages bought by investors in the 1st quarter this year just as Wall Street retreated. This 80% is more than double their share of the market in 2006. But their combined cushion is $83 billion, capital required by regulators. And this supports a huge $ 5 trillion in debt and other financial committments. They suffered $9 billion in losses in 2006, and they are sitting on $19 billion in additional losses which have not beeen acknowledged according to analysts. These companies operate under an imbalanced arrangement where the ownership is by investors but the guarantees are from the government and the supervisory oversight is incomplete, with Congress not having authority over them. The regulators not having the authority or the charter to conduct adequate surveillance and supervision, and controls. The companies raised $13 billion from investors last year and regulatory filings show that they have $7 billion above required minimums for a safety net. But like many things in the financial system today these minimums set in another time and place may be entirely unsuited to the risks they are taking, and their is no effective supervision or controls in place. This is exactly what lays the situation ripe for a financial crisis if foreclosures throughout the country create huge losses for Fannie Mae and Freddie Mac, that this safety net is just both unsuited and never designed to handle for the situation today. And it takes too long for a lame duck administration or Congress without effective leadership in an election year to correct the regulatory errors in the Fannie Mae Freddie Mae situation- the lack of effective controls, regulation, and the lack of clear powers and authority of a financial supervisory authority over them.