Tuesday, April 19, 2005

Will "Bright Line" Mark Winners/Losers? Updated

The question of whether holders of mortgage backed securities will receive government backing may depend on pending legislation. Reuters, "HUD Secretary Alphonso Jackson on Tuesday said it 'makes sense' to delineate between the primary and secondary mortgage markets in any bill to reform oversight of Fannie Mae and Freddie Mac."

Of course it is absurd that after trillion of dollars of MBS's have been issued, now congress will pick and chose what it will backstop. But that is the reality. "The provision is part of a U.S. Senate bill to create a stronger regulator for Fannie and Freddie. That provision would draw a clear line between the primary and secondary mortgage markets."

"The Treasury secretary said the growth of the GSEs' mortgage portfolios is potentially risky for other financial institutions because investors mistakenly assume their GSE bonds would be protected by the government if one of the companies failed.

"'The perceived government guarantee is the heart of the problem,' John Snow said."


At 12:01 PM, Anonymous Anonymous said...

What the hell does that mean ?

At 3:29 PM, Blogger Ben Jones said...

Sorry if I wasn't clear. For a while now, there have been many questions about the mortgage backed securities. Are the Fannie/Freddie portfolios backed by the US government? Nobody seems to know, meanwhile billions more are produced every week.

This story seems to show that the "line" is being drawn, ever so slowly. The winners will receive backing, the lossers will not. I will probably re-write it later. Thanks for commenting.


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