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U.s. Lawmakers Reach Deal On Fannie, Freddie

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July 22 (Bloomberg) -- U.S. lawmakers reached agreement on a rescue plan for Fannie Mae and Freddie Mac that the House may vote on tomorrow, Representative Barney Frank said.

Under a modified version of proposals made by the Bush administration, the Treasury Department would gain authority to inject capital into the two largest U.S. mortgage finance companies, through loans and equity investments.

The agreement is the clearest indication yet that Congress will approve a backstop for the beleaguered companies, which Treasury Secretary Henry Paulson said today is essential for safeguarding U.S. financial market stability. Lawmakers added the provisions to legislation that would create a stronger regulator for Fannie Mae and Freddie Mac and expand federal efforts to stem mortgage foreclosures.

``The package we have got is fully acceptable'' to the Treasury and Senate lawmakers, Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, told reporters in Washington today. ``Nobody is for everything that's in it or got everything in it he wanted, but we negotiated a lot.''

Treasury spokeswoman Brookly McLaughlin said in an e-mailed response to a question that the department is reviewing the language of the bill, which is 694 pages.

Crossing White House

Frank said lawmakers, defying a White House veto threat, decided to keep provisions for $3.9 billion to help local communities buy up foreclosed properties. The Bush administration opposed the idea because it said it would aid lenders who now owned the vacated properties, not struggling homeowners.

``It's clear that the Democrats chose to play politics with the legislation,'' White House spokesman Tony Fratto said in an e-mail, without mentioning any veto plans. He echoed McLaughlin that officials are reviewing the bill.

The Treasury would be barred from providing aid that would cause a breach in the federal debt ceiling under the agreement, a constraint aimed at limiting any taxpayer losses. The debt limit would be raised to $10.6 trillion from the current $9.815 trillion.

The plan would give Paulson power to restrict the companies' dividend payments and require regulatory approval of the salaries of top executives

The legislation would also raise the limit on the size of the mortgages the companies may purchase. The new cap would be $625,000, or the median home price plus 15 percent, whichever is lower, Frank said.

Frank's counterpart in the Senate issued a statement indicating he backs the bill now progressing in the House.

``We have been engaged in extensive and largely fruitful discussions with our counterparts in the House'' and with Bush administration officials, Democratic Senator Christopher Dodd said in a joint statement with Republican Senator Richard Shelby distributed by e-mail. ``We remain optimistic about the prospects for this legislation.''

Dodd, of Connecticut, chairs the Senate Banking Committee and Shelby, of Alabama, is the panel's top Republican.

Paulson, who proposed a rescue program on July 13, reiterated today the plan is aimed at restoring investor confidence in the two companies.

Fannie Mae has dropped about 45 percent in the past month, and Freddie Mac has tumbled about 60 percent, on concern the companies have insufficient capital to cover writedowns and losses amid the mortgage-market collapse.

Lawmakers wrapped the plan into a housing bill that would create a program aimed to help an estimated 400,000 Americans with subprime home loans refinance into 30-year, fixed-rate mortgages backed by the government.

The legislation includes tax breaks to help prop up the housing industry, including what would be the equivalent of an interest-free loan worth as much as $7,500 for first-time homebuyers.

Obviously the Yanks will do anything to save the housing market and what the Yanks do we can expect in the UK. Some of these proposals boggle the mind, they really do.

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Obviously the Yanks will do anything to save the housing market and what the Yanks do we can expect in the UK. Some of these proposals boggle the mind, they really do.

Not really they are trying to save their grubby friends on wall street. Good job Americans have got deep pockets they are going to need them.

Have the shares in these companies gone higher on this?

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(Reuters) - U.S. mortgage market giant Freddie Mac's chief executive dismissed internal warnings that could have protected the company from some of the financial problems now engulfing it, the New York Times said, citing more than two dozen current and former high-ranking executives and others.

In 2004, Chief Executive Richard Syron received a memo from Freddie Mac's chief risk officer warning him that the firm was financing questionable loans that threatened its financial health, the paper said.

Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Syron heightened those perils by ignoring repeated recommendations, the NY Times said.

In an interview with the paper, Freddie Mac's former chief risk officer, David Andrukonis, recalled telling Syron in mid-2004 that the company was buying bad loans that would likely pose an enormous financial and reputational risk to the company and the country.

Syron received a memo stating that the firm's underwriting standards were becoming shoddier and that the company was becoming exposed to losses, the paper said, citing Andrukonis and two others familiar with the document.

But Syron refused to consider possibilities for reducing Freddie Mac's risks, the paper cited Andrukonis as saying.

"He said we couldn't afford to say no to anyone," the paper quoted Andrukonis as saying. Over the next three years, Freddie Mac continued buying riskier loans, the paper said.

Citing many executives, the paper said Syron was also warned that the firm needed to expand its capital cushion, but instead that safety net shrank. Syron was told to slow the firm's mortgage purchases, but they accelerated, the paper said.

Those and other choices initially paid off for Syron, who has collected more than $38 million in compensation since 2003, the NY Times said. Continued...

I wonder if this would have passed congress if they knew this.

Clearly the policy was to keep making money right up to the end and sod the consequences. But the market loves short term profit it's the best kind large and quick like any good get rich quick scheme.

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  • 401 Brexit, House prices and Summer 2020

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