The Real Deal Miami

Treasury could increase Fannie and Freddie’s reserves before year’s close

December 16, 2009 02:59PM

Government-backed mortgage giants Fannie Mae and Freddie Mac could see their lifeline from the U.S. Treasury increase by the end of the year beyond the $200 billion they have each been allotted already. While most analysts do not believe the companies will need to use their entire reserve funds, a recent stress test showed that Fannie’s losses could rise to $180 billion, a value that Barclays analysts are warning might be “too close for comfort” for investors. Following the test, they recommended an increase in Fannie’s lifeline to a precautionary $300 billion. If the Treasury takes heed of their advice, its best bet might be to make that decision soon. After Dec. 31, congressional approval will be needed for any increase in the Treasury’s commitment, and that could be difficult to obtain during an election year. A multi-billion dollar increase in Fannie and Freddie’s reserves before the close of the year is not likely to be well-received amongst American taxpayers, who bear the risk on those losses. However, if the companies do wind up running out of money next year and congress doesn’t approve an emergency increase, Fannie and Freddie would be placed in receivership. [WSJ]