To fall to the "critical level", which would require OFHEO to take the agencies into "conservatorship" (a fancy word for nationalisation), CreditSights says Fannie would have to lose $16 billion of capital and Freddie $14 billion.
The two were taken into "conservatorship", a form of government ownership, in 2008 and have been put to work ever since.
It was handouts without proper workouts that led to Japan's "lost decade".Hence the growing calls for the clean break offered by temporary nationalisation or "conservatorship", as some prefer.
As they wrestle under government "conservatorship", fears are also growing over the health of their corporate cousins, the 12 Federal Home Loan Banks (FHLBs), which have so far survived the credit crunch.Fannie and Freddie, in the red for five consecutive quarters, have said in filings that they could need $51 billion of government aid, on top of $14 billion already handed to Freddie.
"While it is clear Fannie and Freddie need to be fundamentally restructured to end government conservatorship, there are practical limits to the bandwidth available in D.C. for fundamental reform," Millstein said.
Right now they are staggering on in "conservatorship", a form of direct state control.
In 2008 the tottering companies were bailed out by the Treasury and placed in "conservatorship", a sort of receivership that puts their regulator in control of their affairs.
On the equity side, Mr Salmon goes to Andrew Ross Sorkin Andrew Ross Sorkin today says there's a relatively simple reason why Fannie and Freddie were forced into conservatorship: they needed fresh capital, but Hank Paulson essentially prevented them from raising any.
Moreover, it placed both outfits in "conservatorship", enabling the government to administer them temporarily.This arrangement left in place a prior, privately held slug of preferred shares, which have since been acquired by investment funds for the most part, as well as the remaining 20% of ordinary shares.
Though nominally still shareholder-owned, both of those firms have been under the thumb of their federal regulator, the Federal Housing Finance Agency (FHFA) and Treasury since being taken into "conservatorship" in 2008 when they teetered on the edge of collapse.The starting point of the administration's new proposal is that the government's role must shrink.
It would then form a vehicle to take the firm into "conservatorship", wipe out the equity, preferably impose a "haircut" on its debts before guaranteeing them, and then sell its assets.
