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Ed Rooney for Live With a Net Publications
May 25, 2005
Freddie Mac and Fannie Mae were both slammed by Federal Reserve Chairman Alan Greenspan, who again has talked about limits on their portfolio holdings.
In a satellite broadcast speech to a housing conference in Atlanta, he repeated his feelings about Congress reigning in the two Government Sponsored Enterprises which combined hold mortgages and mortgage backed securities valued almost at $1.5 trillion. The combined holdings of 15 years ago were only $132 billion. These holdings seriously rise above what Greenspan feels is needed to allow the two entities to fulfill their missions.
Greenspan has again suggested that Congress limit the holdings, with portfolio restrictions, to the minimum numbers needed, by liquidating the rest. He feels that this could be accomplished with little disruption to the housing market.
Freddie Mac and Fannie Mae were created by Congress put money into the housing market, but both are actually publicly traded stock companies. Greenspan is troubled by his feelings that there is a public perception that Freddie and Fannie are government insured entities. This, he believes, not only promotes higher risk-taking by many investors, but also gives them an unfair advantage when it comes to home loans. He said that this competitive advantage over other financial companies is leading to dangerous concentrations of power.
According to Greenspan, the Federal Reserve sees little evidence that the availability of fixed rate mortgages is tied to the portfolios and doesn’t believe the companies’ portfolios influence home ownership, contribute to mortgage liquidity, or the advancement of capital markets. He said that homeownership seems to be increasing because of low borrowing costs and the higher incomes of many households.
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