Abstract
This paper evaluates the interest rate risk of Fannie Mae and Freddie Mac (F&F) and develops related public policy proposals. F&F merit special attention due to (1) their potentially very large interest rate risk, and (2) their status as U.S. government sponsored enterprises. The analysis focuses on the dynamic hedging strategy and extensive use of interest rate derivatives employed by F&F to control their interest rate risk. While dynamic hedging is highly cost effective for F&F, it creates imperfect hedges and thus could impose significant costs on U.S. taxpayers in a potential future F&F bailout. The policy discussion includes proposals to modify the F&F interest rate disclosures and the OFHEO stress test, and to create rate interest risk standards for F&F.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
