Last night, I asked the assembled multitudes what was the Fed's motivation behind their big 50 bp whack.Let me add some spin to the question: OFHEO will now allow Fannie Mae and Freddie Mac to increase their portfolios by 2%/year above cap.
"In another sign of an administration shift, the regulator for Fannie Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight, agreed to relax restrictions on the mortgage-finance companies' investment holdings. Ofheo's new policy allows Fannie Mae to increase its portfolio by 2% a year, a level comparable with an existing limit on rival Freddie Mac.
Fannie Mae called on the regulator to allow bigger increases. "We still believe the more effective response, given the extent of the market disruption, would be to raise our portfolio cap by at least 10%," Fannie Mae spokesman Brian Faith said."
The details will come out over the next few weeks -- but there are expectations this will eventually include Jumbo Mortgages, Sub-Primes, etc.
Thus, a GSE, originally established to make purchasing homes more affordable for the middle and lower classes, has now become a subsidy for speculators and the purchases of McMansions.
These are your tax dollars at work . . .