The Federal Reserve Board on Wednesday approved a $10.4 billion auction that would give the Federal Housing Finance Agency more flexibility to raise money to pay off the FHA’s $85 billion bailout of the mortgage industry.
The FHA is the agency that manages Fannie and Freddie.
Under the new rules, the FHFA will have to raise additional money to cover its mortgage insurance claims, which are due to run out by the end of March, and to pay for its mortgage servicing activities.
That could mean Fannie’s ability to pay its mortgage obligations and Freddie’s ability and ability to make mortgage loans.
“The FHSA will have the flexibility to adjust the balance sheet,” Fannie spokeswoman Anna Regan said.
She said the agency is working with the FHS to set the baseline for how much money to borrow and what the size of that borrowing will be.
Fannie is expected to use $3.5 billion of the proceeds from the auction to pay down its mortgage liability and to cover costs for the FHCA to take on its own mortgage insurance obligations.
The Treasury Department said Wednesday that the proceeds would be used to fund mortgage relief to help households in low- and moderate-income communities that were hardest hit by the financial crisis.
FHA Chief Executive Freddie Mac is expected at the Treasury Department Wednesday to announce plans for more than $1 trillion in new mortgage relief.
The $1.3 trillion bailout of Fannie/Fredie was the biggest ever undertaken by the Feds, but it was only the first step in a long process of re-organizing the FhbA and the mortgage servicing sector.
The process has been fraught with problems.
The agency was initially set up in 2008 to help the F hibas troubled home mortgage markets, but critics have accused the F Hfa of overreach.
The government has since reorganized the agencies activities to include more oversight of the entire financial industry.
As part of the restructuring, the agency has been trying to help homeowners and mortgage brokers recover from the economic fallout of the financial collapse.