Agents of doom

11 February 2003

When a regulator flags this, investors should sit up and notice. In a badcase scenario, the massive US home loan agencies could threaten bank liquidity and the dollar.

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Armando Falcon, director of the US office of federal housing enterprise oversight, last week published a longawaited research report on Fannie Mae and Freddie Mac. He also indicated he would resign when a successor was found.

The report examines whether Fannie and Freddie – governmentsponsored enterprises that buy home loans from lenders and guarantee them against default – pose a threat to the financial system. Using scenario analysis, Falcon concludes that a failure of Fannie or Freddie could potentially contribute to disruptions in the housing market and financial system.

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