Watt Plan Would End Second-Fiddle Status of Freddie MBS
- May 20, 2014
American Banker
May 20, 2014, by Brian Collins
Freddie Mac has long struggled to compete with larger rival Fannie Mae because the former’s mortgage-backed securities trade at a discount to the latter’s. Their new regulator may change that.
As government sponsored enterprises operating in federal conservatorship, Fannie and Freddie are, in theory, equally creditworthy. Yet for a number of esoteric reasons, investors treat Freddie’s MBS, which Freddie calls “participation certificates” or PCs, as if they are lower-grade bonds than those guaranteed by Fannie. This has forced the smaller GSE to prop up the liquidity and pricing of its PCs to maintain market share.
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