The government-backed mortgage companies that finance the bulk of new US home loans might not have enough capital to withstand the plunge in the country’s housing market, according to one of Washington’s most senior financial legislators. Financial Times
Richard Shelby, the senior Republican on the Senate banking committee, said Fannie Mae and Freddie Mac were 'thinly capitalised, highly leveraged and pose a systemic risk to taxpayers.
'I worry about the failure of the institutions. My interest...is to try to make sure they are strong enough financially to withstand a real downturn in the housing market.'
The two companies are perceived to have implicit government backing which investors believe would trigger a bail-out in the event of collapse, but the government has never had to exercise the guarantee.