Fannie, Freddie to Be Kept Off Federal Budget

Saturday, September 13, 2008

The White House budget office said yesterday that it has decided not to incorporate mortgage-finance giants Fannie Mae and Freddie Mac into the federal budget, citing the temporary nature of the Treasury Department's takeover and "the level of federal ownership" of the firms.

The decision affects the way public expenditures on the two companies will be reflected in official budget projections. Treasury Secretary Henry M. Paulson Jr. has pledged to invest as much as $200 billion to keep the firms solvent.

On Tuesday, two days after the takeover, officials at the Congressional Budget Office announced that the deal had bound the government so tightly to the firms that their business operations, assets and liabilities should be included in the government's balance sheets.

Yesterday, Office of Management and Budget director Jim Nussle said he had decided differently, but may "reevaluate their budgetary status in the future, should conditions change."

In the meantime, Nussle said in a statement: "We will ensure the government's financial relationship with the [the firms] is transparent in the budget and Financial Statements of the U.S. Government, including details on the implementation of the current conservatorship and any federal assistance, the financial health of the entities involved, and the current and projected fiscal impact on government finances."

Fannie Mae, established as a government agency, was converted into a public company in 1968 in an effort to remove its activities from the federal financial statement and balance the budget. Two years later, Congress created Freddie Mac to provide competition in the secondary mortgage market.

-- Lori Montgomery

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