* Housing regulator says any Libor-related losses not
* Fannie, Freddie rely on Libor for bond, swap investments
By Margaret Chadbourn
WASHINGTON, Dec 19 U.S. 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 that was sent to Freddie
and Fannie's regulator, the Federal Housing Finance Agency, by
its inspector general. Reuters obtained a copy of the memo. The
watchdog urged the regulator to consider whether 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. "FHFA agreed to study the matter
A FHFA spokeswoman said the regulator "has not substantiated
any particular Libor-related losses for Fannie Mae and Freddie
Mac," and the regulator "has not made any determination
regarding legal action."
"We continue to evaluate issues associated with Libor and
monitor Libor-related developments, recognizing that other
Federal agencies are also involved in related matters," she
Dozens of U.S. and European banks are under scrutiny for
allegedly rigging the London interbank offered rate, known as
Libor, which has an impact on borrowing costs throughout the
Fannie Mae and Freddie Mac use Libor for their investments
on mortgage bonds and swaps, both popular floating-rate
financial instruments. The two companies, which have received
almost $190 billion in taxpayer aid since they were seized by
the government in 2008, might have lost money if Libor was
artificially depressed on mortgage debt and assets they hold in
Swiss bank UBS on Wednesday agreed to a $1.5
billion fine, the second-largest ever levied on a bank. after
admitting to fraud and bribery as the Libor scandal deepened.
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.
Fannie Mae and Freddie Mac are the two biggest players in
the U.S. mortgage market. They provide a steady stream of funds
by purchasing mortgages from lenders and either holding them or
repackaging them as securities, which they sell to investors
with a guarantee.
The 14-page internal memo said the loss estimate compiled by
the federal watchdog was based on Fannie Mae and Freddie Mac's
public financial statements and historical interest rate data.