COLUMBUS, Ohio. — It's a mixed bag for banks, but Fannie and Freddie's new Treasury backing is good news for corporates, who say it could even mean a rebound in the value of corporate-owned mortgage backed securities.
Banks invested heavily in the government sponsored entities' preferred stocks and now face serious losses because the vehicles didn't make the guarantee cut. And thanks to regulators, corporates steered clear of the mess.
"By regulation, we're not permitted to buy preferred stock, so I can speak on behalf of all corporates: none of us will experience those types of losses," said Tammy Cantrell, senior vice president of asset-liability management at the $3.8 billion Corporate One Federal Credit Union.
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Corporate One does have some Fannie and Freddie exposure, Cantrell said, but it's through the backing of the duo's mortgage-backed securities. The takeover means the federal government improved the guarantee on the investments from implicit to explicit.
"The market value on those, in my estimation, should have improved," Cantrell said.
U.S. Central spokesperson Jill Stockham agreed, saying the GSE's takeover means US Central's Fannie and Freddie-backed MBS portfolio "could definitely regain value." So soon after the takeover announcement, though, it was too early for U.S. Central to produce exact numbers, she said.
U.S. Central has $2.5 billion in Freddie and Fannie-backed bonds that should benefit from the backing and support of the U.S. Treasury, Stockham added.
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