- The Washington Times - Wednesday, June 3, 2009

The Treasury Department’s $400 billion lifeline to mortgage lenders Fannie Mae and Freddie Mac should be enough to see them through the current financial crisis, though each likely will need more than the almost $85 billion in taxpayer aid they’ve already requested, their regulator said Wednesday.

But Federal Housing Finance Agency (FHFA) Director James Lockhart warned a House panel that the two struggling lenders, seen by many as helping spark the U.S. mortgage market meltdown, won’t begin to make a recovery anytime soon.

“The short-term outlook for the enterprises’ financial results is poor,” Mr. Lockhart said. “However, both enterprises have stress-tested their capital shortfalls and expect the Treasury Departments commitment to fund up to $200 billion in capital for each enterprise to be sufficient.”

Mr. Lockhart’s comments came during testimony before the House Capital Markets, Insurance and Government-Sponsored Enterprises Subcommittee, which met to discuss the future of the two giant government-sponsored lenders.

Congress is debating options on the two companies, including privatizing their assets or merging them with other government entities such as the Federal Housing Administration.

Mr. Lockhart said his agency, which oversees the troubled companies’ finances and operations, failed to detect warning signs in assessing the soundness of Fannie Mae and Freddie Mac. The FHFA relied too heavily on credit ratings that later proved inaccurate and failed to recognize risks not on the companies’ balance sheets in assessing their soundness, he said.

The FHFA also let Fannie Mae and Freddie Mac load up on risky subprime mortgage loans, leaving them with leverage ratios as high as 100-to-1, he said.

Fannie Mae and Freddie Mac own or guarantee about 45 percent of the almost $12 trillion U.S. residential mortgage market. The companies already have requested $84.9 billion in aid through the Treasury’s program to buy as much as $400 billion of the companies’ preferred stock .

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