Fannie, Freddie Ordered Off Risky Debt in New Goals

Fannie Mae and Freddie MacFannie Mae and Freddie Mac would have to meet new goals for helping low-income and minority families, and those in economically distressed areas, purchase homes — but the government-sponsored enterprises cannot rely on subprime-related debt or risky “private-label” securities, according to a proposal by regulators.
Fannie and Freddie, the largest sources of financing for U.S. mortgages on single-family homes, have certain government-mandated goals imposed on them that focus on helping families into affordable housing.
But the enterprises would not be able to use securities backed by commercial mortgages or private debt backed by subprime or “Alt-A” paper – mortgages rated slightly higher than subprime – to meet those goals, according to proposed new rules by the Federal Housing Finance Agency, FHFA.
The Housing and Economic Recovery Act of 2008 gave FHFA the authority to establish housing goals for Fannie and Freddie.
Fannie Mae and Freddie Mac were, in effect, seized in 2008 and placed into “conservatorship” after regulators feared the companies would not have sufficient capital to cover massive losses incurred with the purchases of AAA-rated tranches of private-label securities – the kind of high-risk debt securities singled out by FHFA today.
“FHFA does not intend for the Enterprises to undertake uneconomic or high-risk activities in support of the goals, nor does it intend for the Enterprises’ state of conservatorship to be a justification for withdrawing support from these market segments,” the regulator said in a statement outlining the new housing goals for Fannie and Freddie.
FHFA regulates Fannie Mae, Freddie Mac and 12 Federal Home Loan Banks. The government-sponsored enterprises provide more than $6.3 trillion in funding for the U.S. mortgage markets and financial institutions, FHFA said.
Here’s the full text of the FHFA’s Proposed Rule

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