Fannie, Freddie may have lost $3 billion in Libor: watchdog

WASHINGTON Wed Dec 19, 2012 4:52pm EST

A view shows the Fannie Mae logo at its headquarters in Washington March 30, 2012. REUTERS/Jonathan Ernst

A view shows the Fannie Mae logo at its headquarters in Washington March 30, 2012.

Credit: Reuters/Jonathan Ernst

WASHINGTON (Reuters) - Mortgage finance giants Fannie Mae and Freddie Mac may have suffered more than $3 billion in losses due to manipulation of the benchmark interest rate known as Libor, according to an internal memo by a federal watchdog.

The estimate was provided in a memo obtained by Reuters that was sent to Freddie and Fannie's regulator, the Federal Housing Finance Agency, by its inspector general. The watchdog urged the regulator to consider whether or not the losses warranted a lawsuit against the banks that set Libor.

"We conducted a preliminary analysis of potential Libor-related losses at Fannie and Freddie and shared that with FHFA, recommending that they conduct a thorough review of the issue," a spokeswoman for the inspector general's office said when asked about the memo.

Dozens of U.S. and European banks are under scrutiny for allegedly rigging Libor, which has an impact on borrowing costs throughout the global economy. Libor is intended to measure the rate at which banks lend to one another and is used as a benchmark to set borrowing costs on financial instruments, including derivatives and mortgages.

The Wall Street Journal first reported the finding of the inspector general earlier on Wednesday.

(Reporting by Margaret Chadbourn)

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Comments (3)
xyz2055 wrote:
Only in American politics do you create a government backed entity for mortgage lenders and big banks to dump ill conceived mortgages and crazy point spread schemes on the government so taxpayers can pick up the tab. I say shut down both of these pieces of dog do, pawn off the assets for whatever we can get, take the financial hit and vow never again to get into the mortgage business. If you want the American dream, show a steady job history and a 20% down payment. Uncle “Sugar” is closed for business…permanently!

Dec 19, 2012 11:16pm EST  --  Report as abuse
nose2066 wrote:
There’s probably many different ways that Fannie and Freddie lost money. They could have borrowed money from the Federal Reserve at close to zero percent interest, but they did not. They had to pay the Treasury a 10% dividend on the preferred shares that they sold to the U.S. Treasury Department, instead of paying 6% like the banks did. In fact, Fannie and Freddie were loaning money to banks at close to zero percent interest.

Dec 20, 2012 12:58am EST  --  Report as abuse
nose2066 wrote:
There’s probably many different ways that Fannie and Freddie lost money. They could have borrowed money from the Federal Reserve at close to zero percent interest, but they did not. They had to pay the Treasury a 10% dividend on the preferred shares that they sold to the U.S. Treasury Department, instead of paying 6% like the banks did. In fact, Fannie and Freddie were loaning money to banks at close to zero percent interest.

Dec 20, 2012 1:07am EST  --  Report as abuse
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