Thursday, Sept 11, 2008
The Bush administration is considering how to fold Fannie Mae and Freddie Mac’s $5.2 trillion in debt into the federal budget, the White House budget office and the U.S. Treasury Department said.
“We’re discussing how to present this in the federal budget with Treasury and stakeholders right now, but a conclusion hasn’t been determined,” said Corinne Hirsch, a spokeswoman for the Office of Management and Budget. The Government Accounting Office and other federal agencies are also weighing in on the issue.
The federal takeover of the government-sponsored enterprises, or GSEs, on Sept. 7 failed to address whether the debt of Fannie and Freddie should be included in the budget, or whether it carries an explicit government guarantee. In an interview this week, Treasury Secretary Henry Paulson cited the “incongruities” in the law and said “we should be clear, is there a government guarantee or isn’t there?”
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Any decision to add Fannie and Freddie to the budget wouldn’t automatically translate into an explicit government backing for the companies’ combined $1.7 trillion in unsecured debt and $3.5 trillion of mortgage guarantees. Granting the full faith and credit of the U.S. would require an act of Congress to change the companies’ legal status.
“You can’t even be a senior debt investor at this point beyond the 15 month period because you really don’t know if the federal government will back away from its commitment to support the debt,” said Christopher Sullivan, who oversees $1.3 billion as chief investment officer at United Nations Federal Credit Union in New York.