Fannie Mae and Freddie Mac are companies that might be able to help with the sub prime mortgage crisis with help from Chris Dodd, but first a little background. Fannie Mae and Freddie Mac are both government sponsored enterprises (GSE). What does this mean and entitle them to? This article is rather old, but still has a good description of the GSEs. you might want to go read the whole article, but here are the basics:

Although Freddie and Fannie are privately owned, they are what is known as government-sponsored enterprises (GSEs). GSEs don’t have to follow all the rules that true privately owned companies do: they don’t have to register their securities with the government, their securities receive special treatment for investment purposes, they don’t have to pay state and local income taxes and–most important–their government sponsorship gives them the aura of a fully guaranteed government entity. That final benefit means they save billions in borrowing costs, just as lenders are willing to offer low-interest student loans that are guaranteed by the government. That savings alone allows the GSEs to pocket about $2 billion per year, according to estimates by the Congressional Budget Office and the Treasury Department.

What do they do exactly that might help with the mortgage crisis? Well take a look at another article over here. This is really too complex of an issue to summarize here, so for anyone who doesn’t really understand this, just go read that article, everyone else continue on.

Because of the benefits of the being GSEs Fannie and Freddie work hard to maintain that status. In previous elections they have donated pretty evenly to candidates on both sides of the political spectrum. In 2004 Bush got $28,675 from Fannie and $10,745 from Freddie, and Kerry got $54,250 and $29,500 respectively. It makes sense that these companies would donate to the 2008 candidates as well, but a look at OpenSecrets.org showed that they had made only negligible donations to every candidate except Chris Dodd ($17,600 from Fannie and $13,000 from Freddy).

Why would they want to donate only to Chris Dodd? The reason is simple, Dodd can help them now. We’re sure that as the election gets closer more candidates will receive donations, but for now its not necessary. Dodd is the Chairman of the Senate Banking Committee, and in that position he has the power raise the mortgage limit and allow Fannie and Freddie to purchase larger loans. The mortgage limit can only be changed by Congress, so as the Chairman of the Senate Banking Committee, Dodd has incredible power in these types of situations. This seems like just the kind of thing for which Fannie Mae and Freddie Mac have donated to the Dodd campaign.

The news today is that Chris Dodd just had a meeting with the president of the Fed, Ben Bernanke. Dodd encouraged Bernanke to use “all the available tools at his disposal” to help stabilize the economy. Although Dodd didn’t mention anything specific, many people speculate he was referring to lowering a key interest rate. Dodd can’t do this himself directly, but can put pressure of the Fed to influence this change.

Dodd has more direct control over the jumbo mortgage limit. That along with the donations from Fannie and Freddie make this seem like something to expect or at least look out for.

-Invest this!