Washington Post (03/07/08) P. D1; Hilzenrath, David S.
The spreads on Fannie Mae and Freddie Mac securities relative to Treasurys this week reached their widest level since 1986, at 2.48 percentage points, as a result of a massive selloff by struggling investment funds seeking to unload liquid and high quality assets. The deterioration of the market for mortgage-backed securities guaranteed by the two government-sponsored enterprises (GSEs) creates more of a dilemma for regulators who hope they will both play a key role in propping up the housing market. The Office of Federal Housing Enterprise Oversight could expose the GSEs to more risks if it relaxes their capital requirements further to allow them to purchase more of their own securities. "The implications are quite onerous because this was the one market that was functioning, and moreover, this is the market that the administration was counting on to maintain its liquidity so that it could help all these troubled homeowners," says Douglas Dachille, chief executive of First Principles Capital Management.
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