How can Fannie help Freddie?

By Jon Prior 

While Congress remains deadlocked over how to overhaul the mortgage finance system, policymakers are working on a more immediate concern: how to help Freddie Mac make more money and avoid a potential infusion of taxpayer cash.

The issue concerns the different attitudes investors have toward mortgage bonds sold by Freddie and those sold by its bigger sister company, Fannie Mae. Freddie bonds, for a variety of reasons, are eyed more warily by investors. This has the effect of making the business of buying loans and packaging them into securities less lucrative for Freddie than it is for Fannie.

The result is that Freddie walks a much finer line between being profitable and needing government cash to keep it afloat, an issue that is becoming more of a concern with the housing market cooling and the windfall the two companies have enjoyed in recent quarters from settlements with big banks shrinking.

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