Fannie Mae (FNM) And Freddie Mac (FRE) Get New Rules

By Douglas A. McIntyre Published Mar 19, 5:09AM EDT

Fannie Mae (FNM) and Freddie Mac (FRE) are about to get less strict capital rules and that should put $200 billion into the mortgage market. According to Reuters "Under the agreed-to plan, the two companies will be permitted to use some of their capital reserves to soak up mortgage assets while pledging to raise equity capital — probably in the form of preferred stock — in the near future."

The program has the merit of helping stabilize the secondary mortgage market which has been bloodied by the drop in value of financial derivatives based on home loans.

The idea behind the new plan has plenty of benefit for an Administration that wants to being some calm to the markets. but it only addresses half of the problem. Fannie Mae and Freddie Mac are losing billions of dollars because of home foreclosures. While they may be able to put more capital into the market, there is nothing in place to keep them solvent if their red ink keeps piling up.

Solving a piece of the trouble does not do much good, at least longer-term. The two companies cannot do help rescue the mortgage markets if their own financial status begins to collapse.

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

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A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.