Summary
The Administration, in an effort to conserve part of the TARP appropriation approved by Congress has decided to pull approximately $20 billion out of Fannie/Freddie. Both Fannie/Freddie are currently unstable with losses mounting in the billions already. Their credit lines have been effectively doubled to $200 billion each with the Treasury. Other federal agencies are also contributing to the effort.
Analysis
The concern I have is that once Fannie/Freddie went into federal "receivership" it has become evident that they are being used as a pool of convenient capital for a wide variety of programs and the primary mission of Fannie/Freddie has become diluted. If the Administration is planning to deal with foreclosures in an orderly and open basis, then hiding $20+ billion in assistance between Fannie/Freddie and HUD is the wrong way to go. At a time when the President is saying publicly that the government has to be transparent about spending, this reeks of partisan politics. The option was to take the $20+ billion from TARP. Instead, this constitutes a General Sherman civil war style raid on Fannie/Freddie. It will be interesting to see how this plays out and what impact it has on the real mission of these agencies. The ability of commercial real estate to access capital through Fannie/Freddie has to come first. The Congress should be dealing with foreclosures directly and openly, something they are not used to doing.
