Fannie and Freddie’s decision to raise their capital levels this year may seem like a logical move.
However, it comes with a downside.
It is the first time in the last 50 years that the two US banks have raised capital since 2008.
This year, Fannie will need to raise at least $50bn in a bid to keep its mortgage-backed securities, or MBS, afloat, and will be the first US bank to sell its MBS securities in two years.
The two banks were once the envy of the world.
They were the largest US mortgage originators and were in a unique position.
They were part of the financial services industry that provided the bulk of the loans to US households.
While the mortgage industry’s boom is over, Fidelity, Bank of America, Wells Fargo and Citigroup are still in business and continue to make billions of dollars each year.
When the two banks went public in 1999, they were valued at $5.5tn.
Since then, they have had to sell their mortgage securities in the market.
Fannie and Fannie, which are owned by the US government, have raised more than $150bn in taxpayer dollars.
But they are also facing the risk of bankruptcy, and are under pressure from investors, regulators and lawmakers to reduce the amount of debt they hold.
Fannie has already been in bankruptcy court in the US and in Europe, and the UK’s Financial Conduct Authority has also asked for the two institutions to raise more capital.
In the UK, FCA chief executive, Michael Gove, has said that Fannie is under pressure to raise additional capital to keep the banks afloat.
“The prospect of another round of taxpayer funding for Fannie in a matter of weeks is highly concerning,” he said.
If the two Fannie-related companies do not raise more money, there is a risk that the markets will fall, and they will lose their government-sponsored rating, which is an indicator of financial stability.
Meanwhile, the Treasury’s Office for Budget Responsibility has warned that Fiduciary Securities, the mortgage-related securities Fannie bought in 2007, may be “at risk” if they are not more closely regulated.
At the same time, regulators have warned that if Fannie continues to hold on to more of its Mbs, its ratings will be downgraded and that the banks could be subject to fines.
Many investors are concerned about the future of Fannie.
Last month, Bankrate.com wrote that it expects Fannie’s capital to drop by around $100bn this year and next.
Analysts at RBC Capital Markets have warned in a note that a decline in capital levels will not only hurt Fannie but also the broader financial system.
As Fannie prepares to take on more of the mortgage debt, it will also have to sell more of those Mbs to pay for it.
However, if Fidgiary and FHFA fail to raise capital, the markets are likely to fall.
FidGiary and its parent, Freddie Mac, have already said that they will need $50.5bn to keep their mortgage-bond products afloat.
If the banks do not find more funding, investors could see the markets fall further, leaving them with no longer a viable alternative.
So what are the other options?
Investors may find it hard to understand why Fannie should raise money at this point in time.
Although Fannie was once a major financial institution, its assets have dwindled over the last decade, and Fidelity’s share price has declined by around 80 per cent since 2009.
And despite its size, FHRA still has no regulatory authority.
There are also concerns that FHMA’s capital raising may cause Fannie to miss its goal of becoming an independent bank.
What does the UK think?
FidGiaries capital raising is a good idea, but it comes at a price.
The UK’s financial services regulator, the Financial Services Authority (FSA), has warned investors to be very cautious of the Fidgie capital raising, which will increase the risk that Fidelity and Freddie will be unable to maintain their current ratings.
Some investors have suggested that Fidancy and FidGiras ratings will also be cut, because of the potential loss of its AAA rating.
That could be a bad situation for investors.
Fidancys AAA rating will be in danger of being downgraded if it does not raise new capital, because its rating is the best in the industry.
Fidgiaries capital raise comes at an important time for the UK financial services sector.
For example, Fidgies recent capital raising will also help Fannie with its $5bn in new funding.
Another way Fidgy’s capital raise will benefit Fannie could be by encouraging it to sell other assets, including mortgage