Tuesday, September 9, 2008

Fannie / Freddie Portfolios: $250B by 2021

The GSEs’ retained portfolios may not exceed $850 billion through December 31, 2009, after which time they will be reduced by 10% per year until they reach $250 billion.

Currently Fannie and Freddie have about $150B of capacity left between them based on that $850B "hard line". A 10% reduction in that figure per year means it will take until 2021 to reach the $250B goal. That means 3 different presidential terms will need to come and go, with each exercising fiscal restraint to make that happen.

Considering that just 5 years ago we were promised a small, fiscally responsible government and our minds seem to trick us into thinking things have materially changed every 3-5 years, does anyone believe this will happen? Case in point, just a little over two years ago Countrywide (and others) were ready to make Fannie and Freddie a thing of the past... in fact Countrywide's market cap peaked less than 2 years ago and remained well above 20 through last November.