Freddie Mac, the No. 2 U.S. mortgage financing company, does not expect the economy to fall into recession from the housing market downturn and even sees opportunities in the shake-up, its treasurer said on Wednesday.
Timothy Bitsberger told Reuters in an interview that he expects the housing market troubles, sparked by the spike in defaults on subprime mortgages, will hamper the pace of U.S. growth but should not lead to a sustained contraction.
"The economy will definitely weaken and slow down somewhat, but we are not forecasting a recession," Bitsberger said, adding that low unemployment, a strong global economy and solid corporate profitability will help underpin growth.
Bitsberger said Freddie Mac is well positioned to take advantage of the credit market turbulence of the past few months, such as regaining some pricing power in buying assets.
"I would characterise our position as exceptionally strong," said Bitsberger, who is visiting Tokyo, Hong Kong and Beijing in a regular trip to the region. "The competitive landscape is changing in our favour."
Calls have grown from lawmakers to give Freddie Mac and its sister company Fannie Mae more leeway in providing funding to the housing market, such as lifting caps on the size of their mortgage portfolios and letting the firms temporarily buy large-sized housing loans of more than $417,000.
The federal regulator of Freddie Mac and Fannie Mae has already eased some restrictions on their portfolios and has said it may lift the portfolio caps as soon as February.
Freddie Mac has suffered no losses yet on its small holdings of subprime securities but has had to set aside more reserves against potential write-downs on its nearly $2 trillion mortgage portfolio as the housing market has swooned.
The housing market troubles were highlighted by data on Tuesday showing existing home sales in August were the slowest in five years and inventories of unsold homes and condos soared to the highest since records of the combined inventory data began in 1999.
The housing crisis and ripple effects leading to the credit market crunch prompted the Federal Reserve to slash short-term rates by 50 basis points last week, and more monetary easing is expected to stem the fallout on the economy.
Freddie Mac and Fannie Mae fund their purchases and holdings of mortgages by selling bonds whose credit quality is seen as close to that of U.S. Treasuries.
Freddie and Fannie compete with major banks and companies like Countrywide Financial, the largest U.S. mortgage lender, which has taken a hit in the housing crisis.
Bitsberger said investors in Asia remained keen to buy the agency bonds of Freddie Mac. Asian investors including central banks with swelling stocks of dollar reserves typically buy about 30 to 40% of new Freddie Mac bond issues, including at a five-year note sale earlier this month.
He also said the dollar's slide to a 15-year low on a trade-weighted basis and a record low against the euro was not deterring Asian investors from agency bonds.
"I don't see that a weaker dollar means lower U.S. debt investment," he said.