Fannie and Freddie Face Overseas Confidence Crisis

Reuters (UK) (08/18/08); Adler, Lynn
In order to restore flagging demand from foreign investors for debt issued by Fannie Mae and Freddie Mac, some market watchers say an extraordinary Treasury capital infusion will likely be needed. The two government-sponsored enterprises lean heavily on overseas investment to help trim funding costs and keep mortgage rates low. However, foreign central banks have dumped nearly $11 billion from their record holdings of this debt in the last four weeks; and they are unlikely to return in any great numbers until certain the government will back the GSEs. The White House recently approved the means by which the Federal Reserve and the Treasury Department could bolster these two companies, which both posted higher-than-anticipated quarterly losses for the April-through-June period.