One in Ten US Mortgages Owned by Foreigners
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The eurozone is sliding into recession, and the US financial crisis is a major contributor.
In particular, the slide of twin mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) is spooking foreign investors. This is because one in ten US mortgages are essentially held by foreign institutions and governments.
Foreign investors looked on securities in Fannie and Freddie as just as good as US government securities, says Kate Incontrera. So to keep foreign investors in the country Congress has little choice but to back the US Treasury’s Fannie and Freddie bailout plan…
The dark twins of the mortgage market have foreign investors nervously chewing their fingernails, as one out of 10 American mortgages are, in essence, owned by institutions and governments in other countries.
The Treasury Department reports that as of June of last year, China holds $376 billion in securities issued by Fannie and Freddie, and Japan holds another $228 billion.
While these securities aren’t guaranteed by the US government, the New York Times reports, “the housing giants… have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better.”
Unfortunately, the United States now looks like a giant, international credit risk. And although the idea of Congress issuing a “blank check” to bail the mortgage giants out is worrisome to most, in order to keep the foreign investors the U.S. so heavily relies on (somewhat) confident in the country, Congress really has no other choice. Treasury Secretary Hank Paulson said on “Face the Nation” yesterday that he was “very optimistic that we’re going to get what we need from Congress. Congress understands how important these institutions are.”
Source: Cracks in the Monetary Facade
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Tags: credit crisis, FNM, FRE, Hank Paulson, Kate Incontrera, subprimeAbout the Author
Kate Incontrera is the managing editor of The Daily Reckoning. She is also the author of The Daily Reckoning's Weekend Edition, a weekly wrap-up of contrarian investment analysis.
The Daily Reckoning offers a "uniquely refreshing" perspective on the global economy, investing and the ability to live well in uncertain times. You will learn what you can expect from today's markets and how to prosper in the face of uncertainty.