Fed Says Fannie and Freddie Purchases Don't Up Liquidity

Fannie Mae and Freddie Mac's claims that their purchases and holdings of mortgage-backed securities increases liquidity in the secondary market and lowers mortgage rates is not very convincing to Federal Reserve Board chairman Alan Greenspan.In response to written questions by Senate Banking Committee chairman Richard Shelby, R-Ala., the Fed chairman said the two government-sponsored enterprises do "not influence mortgage rates either up or down" by purchasing MBS and growing their mortgage portfolios. "I am not aware of any evidence that convincingly shows we would see an effect on liquidity if the Congress channeled GSE activity toward mortgage securitization and away from holding MBS in portfolio." By purchasing MBS, Fannie and Freddie simply take advantage of their low borrowing costs to "maximize profits for their shareholders," Mr. Greenspan added. At press time, a Fannie spokesman said the company is not ready to respond to Mr. Greenpan's comments.