Fannie Execs Fear Credit Facility May Be Insufficient

Fannie Mae executives are worried their credit facility with the Treasury Department "may prove to be insufficient" and the company could run into liquidity problems that would impair its ability to support the mortgage market. In the management discussion of its third-quarter financial results, Fannie warns that it currently has "limited ability" to issue debt securities with maturities greater than one year to finance its operations and roll over its existing debt. In addition, the company notes there is limited availability of "reasonably priced derivatives" to hedge its short-term debt position. The Washington Post reported that Fannie chief executive Herbert Allison has approached Treasury officials to ease up on the collateral requirements and other restrictions in borrowing from the Treasury. Fannie officials could not be reached for comment. Fannie estimates it could pledge up to $190 billion in agency mortgage-backed securities to borrow from Treasury. But after a valuation haircut, the amount it could borrow would be less than $190 billion. In addition, Treasury has restricted how much Fannie can increase its aggregate indebtedness.