The Financial Times reports:
The treasury department under Hank Paulson is softening its long-held stance that mortgage giants Fannie Mae and Freddie Mac should face strict limits on their holdings of mortgages and securities.
Congress is sparring over how strictly a proposed new regulator will define the portfolio limits for the two government-sponsored enterprises, which both buy mortgages and package them as securities, and act as traders in the secondary market for mortgage-backed bonds.
The GSEs have scaled backed their presence in the mortgage market in the wake of accounting scandals in recent years, but together they still hold a portfolio of $1,400bn mortgage assets.
The size of these portfolios and use of derivatives has been a hot topic with regulators and Congress, with officials at the treasury and Federal Reserve expressing concern about systemic risk to the financial system.
Last year the House of Representatives and Senate banking committee passed bills governing Fannie and Freddie, with the Senate adopting a tougher stance that would cap portfolio assets.
But treasury officials now say they are willing to be more flexible.
Does Hank Paulson still work for Goldman Sachs? Let's quote from a recent
Reuters story:
A lawsuit that accuses former executives of home finance giant Fannie Mae of fraud has been amended to claim that Wall Street banks Goldman Sachs and Lehman Brothers aided the executives in mismanagement and manipulation of earnings.
The amended shareholder derivative lawsuit claims the banks, as well as mortgage insurer Radian Group Inc. , abetted Fannie Mae officers in fraud that will result in an estimated $11 billion restatement, according to a copy of the amended complaint.
Exactly what did Hank Paulson know about Fannie Mae before he left Goldman Sachs? Who in the media is asking this question? I guess Fannie Mae's campaign contributions really are "investments" in those who regulate it.
