Fannie, Freddie need explicit government guarantee, securities industry group says

Ken Bentsen, president and chief executive officer of the Securities Industry and Financial Markets Association (SIFMA), speaks during a television interview in New York.

A prominent financial industry group has written to leaders of the effort to overhaul Fannie Mae and Freddie Mac, the mortgage guarantors under federal control, arguing that the two enterprises must have an explicit government guarantee of the bonds they sell to investors if the mortgage market is to continue to function smoothly.

“Our members believe that market participants will no longer consider an implicit guarantee… as equivalent to an explicit guarantee,” said Kenneth Bentsen, Jr., president of the Securities Industry and Financial Markets Association, known as SIFMA.

Read: Fannie-Freddie reform could rewrite a familiar Washington script

That’s a reference to the situation in 2008, when the government had to step in to save Fannie FNMA, -1.77%   and Freddie FMCC, -1.48%  , which investors had long believed had an implied federal guarantee.

SIFMA said this week it believes that the lack of an explicit backing would make foreign investors skittish, while domestic investors may be required to hold only assets guaranteed by the government. Foreign investors only account for about 5-10% of market share, the group noted, but added, “experience from 2008 showed that once these investors retreat, they are slow to return.”

The Treasury Department and the Federal Housing Finance Agency, Fannie and Freddie’s regulator, are currently discussing their exit from conservatorship and next steps beyond that. But if the enterprises are released from conservatorship without an explicit guarantee, SIFMA said, it would raise funding costs for lenders, which they would pass on to borrowers.

Related: Fannie, Freddie overhaul could mean windfall for preferred stock, analyst says

Filed in: Top News Tags: 

You might like:

The Wall Street Journal: Videogame-streamer DouYu raises $775 million in largest U.S. IPO by a Chinese company this year The Wall Street Journal: Videogame-streamer DouYu raises $775 million in largest U.S. IPO by a Chinese company this year
Market Snapshot: Stocks notch back-to-back losses and Dow transports shed 3.6% Market Snapshot: Stocks notch back-to-back losses and Dow transports shed 3.6%
Earnings Results: IBM stock slips as earnings, cloud revenue beat Street view Earnings Results: IBM stock slips as earnings, cloud revenue beat Street view
Earnings Results: IBM stock rises as earnings, cloud revenue beat Street view Earnings Results: IBM stock rises as earnings, cloud revenue beat Street view
NewsWatch: Netflix stock drops more than 10% as earnings show huge decline in new subscribers NewsWatch: Netflix stock drops more than 10% as earnings show huge decline in new subscribers
The Margin: Watch President Trump and Epstein ogle cheerleaders at Mar-a-Lago bash The Margin: Watch President Trump and Epstein ogle cheerleaders at Mar-a-Lago bash
Netflix stock drops more than 10% as earnings show huge decline in new subscribers Netflix stock drops more than 10% as earnings show huge decline in new subscribers
The Margin: Ready for grasshopper juice? These bugs pack 5x more antioxidants than fresh-squeezed OJ The Margin: Ready for grasshopper juice? These bugs pack 5x more antioxidants than fresh-squeezed OJ

Leave a Reply

Submit Comment
© 2019 Stock Investors News. All rights reserved. XHTML / CSS Valid.